Question

10. Corporate valuation model

The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model.

Tropetech Inc. has an expected net operating profit after taxes, EBIT(1 – T), of $1,200 million in the coming year. In addition, the firm is expected to have net capital expenditures of $180 million, and net operating working capital (NOWC) is expected to increase by $15 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year?

$1,005 million

$1,365 million

$18,490 million

$1,035 million

Tropetech Inc.’s FCFs are expected to grow at a constant rate of 4.62% per year in the future. The market value of Tropetech Inc.’s outstanding debt is $4,894 million, and its preferred stocks’ value is $2,719 million. Tropetech Inc. has 225 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 13.86%.

Term	Value (Millions)
Total firm value
Intrinsic value of common equity
Intrinsic value per share

Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table. Assume the firm has no nonoperating assets.

Answer 1

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

08:22 C w ? ENG 70 01-08-2020 36 Х C743 . A B с D E F G H — 722 723 724 FREE CASH FLOW 1200 EBIT*(1-t) LESS : NET CAPITAL EXPENDITURE LESS : INCREASE IN NOWC 180 15 FCF 1005 725 726 727 728 729 730 731 ANS 1 732 733 734 ANS 2 735 736 737 ANS 3 738 739 ANS 4 740 VALUE OF FIRM = FCF/(WACC-g) VALUE OF FIRM = LESS VALUE OF DEBT LESS VALUE OF OREFERRED STOCK VALUE OF COMMON EQUITY 10876.62 [1005/(0.1386-0.0462)] 4894.00 2719.00 3263.62 INTRINSIC VALUE PER SHARE = 14.50 (3263.62/225] 741 742 743 744 745 NPV OCF CASH FLOW STATW FCF ARM, MSI,confidenceINDEX LOAN CURRENCY CROSS OVER GM HPR AM CUMRET TAX HEDGING MONEY MAE ... + ...