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Your company has an expected unlevered, after-tax cash flow for the next two years of $281,000....

Your company has an expected unlevered, after-tax cash flow for the next two years of $281,000. Then (from year 3) it will decrease to $278,400, and stay constant forever. The company also has a constant debt of $4 million. The interest rate paid by the company is 2%. The unlevered return on equity is 8% and the corporate tax rate is 13%.

What is the value of the company?

(a) $3,320,267
(b) $3,974,735
(c) $4,004,636
(d) $4,157,820

The correct answer is C
(Thumb up for the correct step-by-step solution. Many thanks)

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Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home nert Page Layout Formulas Data Review View dd-Ins Cut ta copy ▼ E AutoSum ー E ゴWrap Text General ▲· 逻锂函Merge & Center. $, % , 弼, conditional Format eCell Insert Delete Format Paste B I 프 . 灬 Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard AQ370 AL Font Alignment Number Styles Cells Editing AM AN AO AP AQ AR 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 /4 く トト1 OCF CASH FLOW STAT N | FCF . YEAR FCF FCF TERMINAL VALUE TOTAL CASH FLOW PV FACTOR @8% PV OF CF 3 278400 281000 281000 281000 281000 3480000 (278400/(0.08-0.00) FCF3/ko-8), ko-896, g-0 281000 0.9259 260185.19 3761000 0.8573 3224451.30 3484636 VALUE OF UNLEVERED FIRM ACCRODING TO MM APPROACH-VALUE OF LEVERED FIRM = VALUE OF UNLEVERED FIRM + DEBT(TAX RATE) VALUE OF UNLEVERED FIRM ADD DEBT (TAX RATE) VALUE OF FIRM 3484636 520000 [4000000 X 13%] 4004636 ANSWER: C ARM, MS,confidenceINDEX . CURRENCY . LOAN CROSS OVER HEDGING MONEY MARKET . GM HPR AM , TAX , GROWTH SUST, PREF AND DIV POLICY , erences: EV49 05:24 01-02-2019

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