Question

 You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 0.9, a debt-to-equity ratio of 0.4, and a tax rate of 30 percent. 

Assume a risk-free rate of 3.7 percent and a market risk premium of 7 percent.

 Lauryn's Doll Co. had EBIT last year of 45 million, which is net of a depreciation expense of S4.5 million. In addition, Lauryn's made $4.25 million in capital expenditures and increased net working capital by $4.7 million. Assume the FCF is expected to grow at a rate of 2.6 percent into perpetuity. What is the value of the firm (in millions)?

Answer 1

=(EBIT*(1-tax rate)+Depreciation-Capital Expenditure-Working Capital)*(1+growth rate)/(risk free rate+market risk premium*equity beta/(1+(1-tax rate)*D/E)-growth rate)
=(45*(1-30%)+4.5-4.25-4.7)*(1+2.6%)/(3.7%+7%*0.9/(1+(1-30%)*0.4)-2.6%)
=460.87473