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What is levered value of the firm

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Q1. Azumah Corporation plans to finance a new investment by borrowing$45.8 million. The firm will pay interest only on this loan each year and it will maintain an outstanding balance of $45.8 million on the loan. After making the investment, Azumah expects to earn free cash flows of $9.5 million each year. However, due to unexpected economic downturn,Azumah's expected free cash flows will decline to $8.5 million per year. Azumah currently has 5.2 million shares outstanding,and it has no other assets or opportunities. Assume that the appropriate discount rate for Azumah's future free cash flows is 6.8% and Azumah's corporate tax rate is 30%.

A) What is unlevered value of the firm, given the unexpected economic downturn? (Assume that the investment will take place without debt)

B) What is levered value of the firm, given the unexpected economic downturn?

levered value=unlevered value+debt=$125m+$45.8m=$170.8m

C) What is the market value of Azumah's eauity based on part b?

D) What is Azumah's share price today based on part c?

Reference no: EM133205116

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