00:01
The moma corporation's cash flow from operations before interest in taxes was $2 million in the year just ended, and it expects that this will grow by 5 % per year forever.
00:13
To make this happen, the firm will have to invest an amount equal to 20 % of pre -tax cash flow each year.
00:19
The tax rate is 35%.
00:21
Depreciation was $200 ,000 in the year just ended, and it is expected to grow at the same rate as the operating cash flow.
00:28
The appropriate market capitalization for the unleveraged cash flow is 12 % per year, and the firm currently has debt of $4 million.
00:39
Use the free cash flow approach to value the firm's equity.
00:44
So the firm's value equals the free cash flow to firm discounted at the wacc.
01:08
The wacc is 12 % right there, and growth is 5%, which is given to us up here.
01:39
Free cash flow from firm one would be the next free cash flow of the firm.
02:02
And we get that it equals the ebit minus income tax plus depreciation minus working capital investment.
02:32
Equals ocf minus depreciation, which means that working capital investment equals the 2 million times 20%, which gives us 2 million times 20 % as a decimal is 0 .2.
03:05
Remember, just divide your percentages by 100 to find the decimal, which gives us 400 ,000.
03:31
Depreciation we were told was 200 ,000.
03:33
So tax is 35 % as a decimal, that's 0 .35 times 2 million minus the 200 ,000 depreciation.
04:01
This gives me 0 .35 times we get 1 ,800 ,000.
04:14
And if we multiply that by 0 .35, i get 630 ,000.
04:19
E -b -i -t is o -cf minus depreciation, which is actually this piece right here, 2 million minus 200 ,000.
04:45
And that's that piece in parentheses that i was pointing to, and we get 1 ,800 ,000.
04:55
So f -c -f -f -f -0 equals 1 ,800 ,000.
05:04
That's the ebit amount, minus 630 ,000...