Question

QUESTION 8 Yr FCF 14M 2 10M A firm expects the free cash flows listed above. After year 2, the firm expects free cash flows will continue to grow indefinitely at the industry average of 5%. The firm estimates its cost of capital to be 8%. If the firm has debt of $40 million and cash of $20 million, what is its enterprise value? Assume 10 million shares outstanding QUESTION 9 An asset with a book value of $80,000 is now being sold for $35,000. If the tax rate is 40%, what are the net proceeds from selling this asset? QUESTION 10 A firm currently has $50 million in debt, $70 million in cash, and 10 million shares outstanding. If the present value of the firm's free cash flows is $150 million, what should be its share price?

Answer 1

8.

enterprise value will be

=4/(1+8%)^1+10/(1+8%)^2+((10*(1+5%))/(8%-5%))/(1+8%)^2

=312.35 million

9.

net proceeds=35000-(35000-80000)*40%=53000

10.

its share price will be =(150+70-50)/10=17.00