Reference no: EM132830105

Mike, an equity analyst, is evaluating Platinum Manufacturing (PM) by using the FCFF and FCFE valuation approaches. Mike gathered the following information:

Net Income $275 million
Depreciation $80 million
Loss on asset $20 million
Income from restructuring expenses $5 million
Capital expenditure $150 million
Increase in working capital $50 million

Additional information:

1. PM will finance the increase in fixed assets and the increase in working capital with 40% debt.
2. The current market value of PM's outstanding debt is 1,500 million and the interest expense is 120 million.
3. The expected growth rate of FCFF and FCFE is 2.5% and 3%, respectively, indefinitely.
4. PM has 20 million shares outstanding and has a tax rate of 30%.
5. PM is financed with 40% debt with a before-tax cost of debt of 6% and 60% equity with a before-tax rate of 10%.

Problem 1: Calculate the WACC of PM.

Problem 2: The current FCFF of PM is closest to:

Problem 3: The current FCFE of PM is closest to:

Problem 4: The value of equity of PM using the FCFE valuation approach is closest to