Estimate sat total enterprise value without leverage

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(a). SAT Industries has no debt and expects to generate constant unlevered free cash flows of $25 million each year. The CFO of SAT believes that if it permanently increases the level of debt to $60 million, the risk of financial distress may cause the expected annual unlevered free cash flow to decrease by $1 million. Suppose SAT's tax rate is 30%, the risk free interest rate is 4%, the expected market portfolio return is 12% and the beta of SAT's total assets is 1.2.

(i). Estimate SAT's total enterprise value without leverage

(ii). Estimate SAT's total enterprise value with leverage

Reference no: EM132406713

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