Given are the following data for year 1:
Profits after taxes = $14 million;
Depreciation = $6 million; Interest expense = $6 million;
Investment in fixed assets = $12 million; Investment in working
capital = $3 million. The corporate tax rate is 25 percent. Assume
that free cash flow grows at a rate of 5 percent for year 2 and 3,
and then it grows at a rate of 3 from year 4 and beyond. The
weighted average cost of capital is 10 percent. If the company has
$20 million debt and 1 million shares outstanding.
i. Calculate the free cash flow (FCF)
for year 1, 2, 3, and 4.
ii. Calculate the value of the
firm.
iii. Calculate value per
share.