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What is the equity value of Value Co based on the DCF

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Question - Pinder Ltd wants to estimate the value of Value Co using a DCF analysis. Last year, Value Co's revenues were $1,000. For the next five years, Pinder Ltd makes the following projects about Value Co. Value Co's sales are expected to grow by $100 each year. Value Co's EBIT margin is expected to remain constant at 40%. Value Co's depreciation is expected to be 10% of sales each year. The capital expenditures are expected to be 15% of sales for the next three years then 10% thereafter. There are no expected changes in Value Co's working capital. Value Co's free cash flows after this five year projection period is expected to grow at 1% per annum in perpetuity. The corporate tax rate is 30%. The market value of Value Co's debt is $600 and the market value of Value Co's equity is $3000. The cost of debt is 6%, the risk-free rate is 1%, the market risk premium is 10%, and the unlevered beta for comparable firms is 0.8. Based only on the information above, what is the equity value of Value Co, based on the DCF?

Reference no: EM133070451

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