Solution-Valuing a troubled firm-fcff approach

Valuing a troubled firm-fcff approach

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Reference no: EM132613256

Valuing a Troubled Firm: FCFF Approach

LIS Corporation, an environmental service provider, had revenues of $209 million in 2002 and reported losses of $3.1 million. It had earnings before interest and taxes of $12.5 million in 2002, and had debt outstanding of $109 million (in market value terms). There are 15.9 million shares outstanding, trading at $11 per share. The pre-tax interest rate on debt owed by the firm is 8.5%, and the stock has a beta of 1.15. The firm's EBIT is expected to increase 10% a year from 2003 to 2006, after which the growth rate is expected to drop to 4% in the long term. Capital expenditures will be offset by depreciation, and working capital needs are negligible. (The corporate tax rate is 40%, and the treasury bond rate is 7%.)

Estimate the cost of capital for LIS.
Estimate the value of the firm.
Estimate the value of equity (both total and on a per share basis).

Reference no: EM132613256

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Valuing a troubled firm-fcff approach

Reference no: EM132613256

Reference no: EM132613256

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