Asked by Danilo Montero on Jun 22, 2024
Verified
The free cash flow to the firm is reported as $198 million. The interest expense to the firm is $15 million. If the tax rate is 35% and the net debt of the firm increased by $20 million, what is the approximate market value of the firm if the FCFE grows at 3% and the cost of equity is 14%?
A) $1,950 billion
B) $2,497 billion
C) $2,585 billion
D) $3,098 billion
Free Cash Flow
The net cash flow a business produces following the deduction of operational expenses and investment in maintaining its fixed assets.
Interest Expense
The cost incurred by an entity for borrowed funds, typically reported on the income statement.
Net Debt
A financial metric that calculates a company's overall debt situation by subtracting its total cash and equivalent assets from its total short-term and long-term debt.
- Identify factors influencing the market value of equity and debt in firm valuation.
Verified Answer
Value = (208.25 × 1.03)/(0.14 − 0.03) = 1,950
Learning Objectives
- Identify factors influencing the market value of equity and debt in firm valuation.
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