Finance

caper 21-1 First calculate the PV of all future deliver cash prey associated with operations Free cash arise next year=2.0*1.05=2.1 encourage of operations = Vops=2.1/(WACC-5%) Now set-back calculate the cost of equity =risk free direct +beta*risk premium = 5%+1.4*6%=13.4% put up measure out of equity is Vs then we have Vops = Vs+$10.82 million the despatch of debt =10.82/Vops Weight of equity = Vs/Vops=(Vops-10.82)/Vops WACC=10.82/Vops*8%*(1-40%)+(Vops-10.82)/Vops*13.4%=13.4%-8.6%*10.82/Vops Substituting the evaluate of WACC,we vex, Vops=2.1/(13.4%-8.6%*10.82/Vops-5%) lagger we get 8.4%*Vops-0.93052=2.1 Vops=36.08 Now value of equity Vs=36.08-10.82=25.26 million Problem 21 2 21-2FCF1 = $2.5 million, FCF2 = $2.9 million, FCF3 = $3.4 million, and FCF4 = $3.57 million; by-line in the quaternary year = $1.472 million. g = 5%; b = 1.4; rRF = 5%; rpm = 6%; wd = 30%; T = 40%; rd = 8% Vops = ? P0 = ? rsU= wdrd + wsrsL observation: rsL was cipher in p uzzle 1 to be 13.4% = 0.30(8%) + 0.70(13.4%) = 11.78% WACC was calculated in problem 1 to be 10.82%. Since the horizon groovy structure is the kindred as in problem 1, the WACC is the same, although we move intot train WACC to apply the APV. Tax shields are TS1 = TS2 = TS3 = Interest x T = $1,500,000(0.40) = $600,000, and TS4 = $1,472,000 (0.40) = $588,800. Tax shield horizon value = TS4(1+g)/(rsU-g) = 0.5888 (1.05)/(0.1178-0.

05) = 9.12 Value of revenue enhancement shields = = $7.67 million. Unlevered horizon value = FCF4(1+g)/(rsU-g) = 3.57(1.05)/(0.1178-0.05) = 55.29 Unlevered Vops= = $44.69 Value of operations = unlevered Vops + value of impose shields = $ 44.69 + $7.67 = $52.36 million Equity valu! e to Harrison= Vops Debt = $52.36 million - $10.82 million = $41.54 million or $41.54 per share since in that location are 1 million shares outstanding. Corporate Valuation localise Horizon Value = FCF4(1+g)/(WACC-g) = 3.57(1.05)/(0.1082 0.05) = 3.7485/(0.0582) = $64.41 million Value of...If you want to get a full essay, order it on our website: OrderEssay.net

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