Question

Tropetech Inc. has an expected net operating profit after taxes, EBIT(1 – T), of $2,400 million in the coming year. In addition, the firm is expected to have net capital expenditures of $360 million, and net operating working capital (NOWC) is expected to increase by $45 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year?

$2,715 million

$43,481 million

$2,085 million

$1,995 million

Tropetech Inc.’s FCFs are expected to grow at a constant rate of 3.90% per year in the future. The market value of Tropetech Inc.’s outstanding debt is $11,510 million, and its preferred stocks’ value is $6,394 million. Tropetech Inc. has 675 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 11.70%.

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

Total firm value FCF1/(r-g) Here, Free cash flows (FCF1) =2400-360-45 Required return (1) Growth rate (g) ,,995 11.70% 3.90% $ 25,576.92 1995/(11.7%-3.9%) Total firm value Less: Debt Preferred stock Value of common equity - Number of shares issued 11,510 6,394 $ $ 7,672.92 675 Intrinsic value per share $ 11.37

Please rate thumbs up