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In the most recent year, Samsung reported after-tax operating income of $20 million. The company had...

In the most recent year, Samsung reported after-tax operating income of $20 million. The company had capital expenditures of $25 million, depreciation of $15 million and all other net operating assets increased by $5 million. Samsung expects to increase free cash flow each year for the next five years by 6% per year, after which they expect a continuing or terminal growth rate of 2%. The company has 10 million shares outstanding and is entirely financed by equity. Samsung's beta is 1.3. The risk-free rate is 2% and the market premium is 8%. Samsung has en effective and statutory tax rate of 20%.

a. estimate the value Samsung per share based on the above info.

b.The CEO suggested that Samsung borrow $25 million (50% of the capitalization) and repurchase share. The CEO believes Samsung can borrow at a 6% rate and Samsung's stock is currently trading at $10 per share. What is the estimated value per share if the suggestion is followed?

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Answer #1

Samsung 02. Present rake of calculation OK free Cash Flow FCFE = 20 milliont 15 million 5 millon-25milion 5 million year 0 FYear FCF PUFe 12-47. PUFEF 4.03 0.890 3.587 4. 27 0.792 3.389 3 otthony.53 o 709 3.189 4 4.80 r. 0 627 3.010 5.09 0.557 E 2.8

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