Estimate the value of firm

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Reference no: EM131909379

Stitcher Inc. reported EBITDA of S95,780 in 2016, prior to interest expense of S21,500 and depreciation charges of S7,800. Capital expenditures amounted to S59,000 during the year, and working capital was 19% of revenues (which were S 1,350,000) The market value of the firm's debt is S3,450,000 and yielding a pre-tax interest rate of 9.87%. There were 100,000 shares outstanding trading at $23.61 per shares and the most recent beta is 1.23. The tax rate for the firm is 21%. Assume the risk free rate is 4% while the market premium is 5.50%. The firm expects revenues, earnings, capital expenditures and depreciation to increase 14% a year for the next 5 years after which the growth rate is expected to drop to 2.5% forever after. Net working capital is expected to remain 19% of revenues. Assume that starting in year 6 capital spending does NOT grow 2.50% but becomes equal to depreciation instead. The company also plans to lower its debt to equity ratio to 1 15% for the steady state period which will result in a pretax interest rate of 9%. Estimate the value of the firm.

Reference no: EM131909379

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