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Calculate the value of the firm

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Reference no: EM13891153

1. "A firm pays dividends of $5 million once annually. Analysts expect the dividends to remain at this amount indefinitely. The cost of equity is 14%.

a. Calculate the value of the firm.
b. Analysts now expect that dividends will grow annually by 3%. Calculate the firm value."

2. A firm has expected free cash flows to the firm of $12 million annually which are expected to grow at 3.5% each year. It uses both debt and equity. The cost of equity is 13% and the after-tax cost of debt is 7.5%. The debt to asset ratio is 40%. Calculate the value of the firm.

3. "A firm has the projected cash flows as indicated below.

a. Assuming the Year 5 free cash flow amount is expected to grow at 3% annually indefinitely and the firm has a Weighted Average Cost of Capital (WACC) of 9.8% calculate the firm value.

b. If the market value of the debt is $170 million what is the value of equity?"

Year Free Cash Flow to Firm
($ in millions)
0 $25
1 $30
2 $33
3 $35
4 $37
5 $38

Reference no: EM13891153

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