Determine and Estimate the Price by FCFE ratio for the firm

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Point 1: Grumman Corporation, a producer of military aircraft, reported net income of $120 million in 1993, after paying interest expenses of $19 million. The depreciation allowance in 1993 was $77 million, while capital expenditures amounted to $80 million in the same year. Working capital increased by $15 million in 1993. (The tax rate is 40%.) Grumman finances 10% of its net capital investment and working capital needs using debt.

Point 2: The free cash flows to equity are expected to grow 10% a year from 1994 to 1998, and 6% a year after that. The stock had a beta of 0.80, and this is expected to remain unchanged. The treasury bond rate is 7% and the risk premium is 5.5%.

Question 1: Determine and Estimate the Price/FCFE ratio for the firm.

Reference no: EM132476690

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