Reference no: EM132615536

Problem 1: Calculate the value of the Alpha company with the cash flow discount method. This company is listed on the Stock Exchange and presents the following information:

EBIT                           20

INTERESTS                  -5

EBT                            15

TAXES (40%)               -6

NET PROFIT                     9

The firm distributes all of the profits as dividends and invests the total depreciation in fixed assets. You have a debt of $ 100 at an interest rate kd = 5% (the debt is considered risk free). Information corresponding to the capital market:

e = 1.2

rf = 5%

rm = 12%

You should value the business by the four traditional cash flow discounting methods (ECF, FCF, CCF, and APV), assuming Modigliani-Miller's propositions with taxes are met. Also perform an equivalence test of the methods.