Estimate the free cash flow to the firm in 2013

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Silverline Inc. reported net income of $770 million in 2013 after interest-expenses of $320 million. Its corporate tax rate was 36%. It reported depreciation of $960 million that year, and capital spending (=capital expenditure) was $1,200 million. This firm also had $4,000 million in debt outstanding on the books, rated AA, carrying a yield to maturity of 8%, and trading at par. The beta of the stock was 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5,000 million. Silverline's working capital requirements were negligible. The Treasury bond rate was 7%, and the risk premium was 5.5%.

a) Estimate the free cash flow to the firm in 2013.

b) Estimate the value of the firm at the end of 2013 assuming that the long-term growth rate is equal to 6.5%.

c) Based on the FCFF approach used in question b) estimate the value of the equity and the value per share at the end of 2013.

Reference no: EM132667739

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