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7. Suppose that today is January 1 of the first year. Miami Corp. expects that the EBIT in this year will be $300. During the same period, depreciation costs will be $14 and amortization will be S6. Capital expenditures are $60, and the planned increase in net working capital is $30. The tax rate is 0.35. The debts of Miami Corp. are $250. The weighted average cost of capitals is 10%. (a) What is the free cash flow to the firm (FCFF)? (b) If the firm pays $20 as interest expense and there is no change in the debts, what is the free cash flow to the equity (FCFE)? (c) Suppose that the FCFF of the firm will increase at 10% during year 2 and 8% during year 3, After year 3, the growth rate will be 5%, what is the value of the equity? Use FCFF for (c). (d) Suppose that the FCFE of the firm increases at 7% per year. What is the cost of equity of Miami Corp.?
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