Reference no: EM132913722

Discounted Cash Flow:

Clarity Corp is considering the purchase of 100% of the common equity of MoneyApp, a young growing company. We know the following:

Year 1, 2, and 3 Respectively:

Revenues: 20, 30, 40m

Cash OpEx: 17, 25, 32m

Depreciation (non cash): 1, 1.5, 2m

Increase In Working Cpaital: .5, 1.5, 1.5

CapEx: 1, 1, 2.0

Corprate Income Tax Rate: 30% all years

Debt Principal Repayment, 0.0, 0.5, 1.0

Interest Expense on Total Debt: 0.0, 0.8, 0.6

Facts:

MoneyApp Cost of Capital = 20%

MoneyApp Cost of Debt = 7%

MoneyAp Constant debt to equity ratio in the future will be 20%

Clarity Corp will sell the equity of MoneyApp for 45m at the end of year 3.

1. What Is the Free Cash Flow to Equity in EACH YEAR. Bic will sell the equity of MoneyApp at the end of Year 3 for 45m (that is the Terminal Value)
2. What should we pay for the equity of MoneyApp? Show Calculations.