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Victoria Enterprises expects earnings before interest and taxes (EBIT​) next year of $2.1 million. Its depreciation...

Victoria Enterprises expects earnings before interest and taxes (EBIT​) next year of $2.1 million. Its depreciation and capital expenditures will both be $297,000​, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $55,000 over the next year. Its tax rate is 35%. If its WACC is 9% and its FCFs are expected to increase at 3% per year in​ perpetuity, what is its enterprise​ value? The​ company's enterprise value is? (Round to the nearest​ dollar.)

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Answer #1

Calculation of free cash flow next year      
EBIT   2100000  
less : tax 35%   -735000  
________________   ________________  
EAT   1365000  
Add : depreciation   297000  
Less : capital expenditure   -297000  
less: increase in working capital   -55000  
________________   ________________  
Free cash flow    1310000  
________________   ________________  
      
Growth Rate of FCF=   3%  
WACC rate   9%  
      
Enterprise value = FCF next year/(wacc-g)      
1310000/(9%-3%)      
21833333.33      
So enterprise value is   21833333.33  
      

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