Youh have been asked to value a stable co with revenues at $100 million and operating margins 10%. Since the company is not growing , working capital is constant and capital expenditures are spent only to replace depreciation. The company has $50 million in debt outstanding and cost of debt equal to 5% (the company's bonds trade at par, so interest payments are computed using cost of debt). The company has 10 million shares outstanding and stock trades at $10.50. The companys cost of equity equals to 10%, and tax rate is 40%. 1. Compute Free Cash flow 2. estimate WACC 3. Using a no growth perpetuity, estimate the company's enterprise value, equity value and stock price. 4. If interest taxes shields are discounted at the unlevered cost of equity, whiat is the unlevered cost of equity? 5. Compute enterprise value using adjusted present value.
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