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Estimate the value of equity using the wacc model

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In 2010, the GAP reported operating income of $2,500 million on revenues of $13,673 million. The firm also reported capital expenditure of $1,859 million and depreciation of $590 million, and its noncash working capital increased by $323 million during the year. The market value of debt is $7,460 million and the target debt-to-capital ratio is 25%. During the high growth period, which will last for the next 3 years, ROC is assumed to be 13.61% and the reinvestment rate is assumed to be 93.53%. During the stable growth period, from 4th year to forever, permanent growth rate is assumed to be 4% and the reinvestment rate drops to 36.73%. Bottom-up beta of the company is 1.2. Risk-free rate and equity market risk premium are 5.4% and 4%, respectively. Pre-tax cost of debt will remain at 7.2%. Corporate marginal tax rate is 35%.

Estimate the value of equity using the WACC model.

Reference no: EM133111042

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