What is the horizon value of the tax shield at y3

Assignment Help Financial Econometrics

Reference no: EM13335300

a. Suppose that Firms U and L are growing at a constant rate of 7% and that the investment in net operating assets required to support this growth is $50,000 (10% of EBIT). Use the compressed APV model to estimate the value of U and L, estimate the levered cost of equity, and find the WACC.

b. Now suppose the expected FCF for Y1 is $250,000 but it is expected to grow unevenly over the next 3 years: FCF Y2 = $290,000 and FCF Y3 = $320,000, after which it will grow at a constant rate of 7%. The expected interest expense at Y1 is $80,000, but it is expected to grow over the next couple of years before the capital structure becomes constant: Interest expense at Y2 will be $95,000, at Y3 it will be $120,000 and it will grow at 7% thereafter. What is the estimated horizon unlevered value of operations (i.e. the value at Y3 immediately after the FCF at Y3)? What is the current unlevered value of operations? What is the horizon value of the tax shield at Y3? What is the current value of the tax shield? What is the current total value? The tax rate and unlevered cost of equity remain at 40% and 14%, respectively.

Reference no: EM13335300

Questions Cloud

Describe should blue angel invest in the project : The project will be financed at Blue Angel's target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 5.7 percent until the end of the fifth year and remain constant forever thereafter.

Prepare a bank reconciliation for salem : Prepare a bank reconciliation on the basis of the reconciling items and prepare a bank reconciliation for Salem Co. for May 31, 2010.

Evaluate the equilibrium constant for the reaction : calculate the equilibrium constant for the reaction CO2 + H2O ? HCO3 - + H+ (Hint: Start by writing an equation that defines the equilibrium condition in terms of the Michaelis-Menten formulation of this reaction. Note that the kinetics was measur..

Calculate the amplitude of the corresponding magnetic field : An electromagnetic wave in vacuum has an electric field amplitude of 405 V/m. Calculate the amplitude of the corresponding magnetic field

What is the horizon value of the tax shield at y3 : Suppose that Firms U and L are growing at a constant rate of 7% and that the investment in net operating assets required to support this growth is $50,000 (10% of EBIT). Use the compressed APV model to estimate the value of U and L

Define the membrane of a glass electrode : The pH difference across the membrane of a glass electrode is 3.83. How much voltage is generated by the pH gradient at 25 degrees Celsius and 37 degrees Celsius

What was the rocks velocity when it hit the water : A rock is dropped off the side of a bridge and hits the water below 7.5 s later. What was the rock's velocity when it hit the water

What is maximum price that company should be willing to pay : Zoso is a rental car company that is trying to determine whether to add 28 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method.

Why menu-driven interfaces continue to be popular : Suggest at least three (3) strategies for making menu-driven interfaces visually appealing in the modern computing environment.

User Account

All Pages