Assumptions Projected Revenue 10,000 10,500 11,000 Projected Operating Income (EBIT) 1,000 1,100 1,200 depreciation/Sales 10.00% 10.00% 10.00% Capital Expenditure/Sales 5.00% 5.00% 5.00% Interest Expense 300 300 300 Increase in Net Working Capital/Sales 2.00% 2.00% 2.00% Marginal Tax Rate 30.00% 30.00% 30.00% Weighted Average Cost of Capital (WACC) 10.00% 10.00% 10.00% Terminal Growth Rate (%) 4.00% 4.00% 4.00% Market Value of Debt 5,000 5,000 5,000 Number of Share Outstanding 200 200 200 Today FY1 FY2 FY3 EBIT (Earnings before Interest & Tax) Interest Expense Tax Net Income Depreciation Operating Cash Flow (OCF) Capital Expenditure Increase in Net Working Capital Free Cash Flow (FCF) Terminal Value PV of FCF and Terminal Value Sum of All PV ( Enterprise value) Market Value of Debt Value of Equity Number of Share Outstanding Share Price
Assumptions Projected Revenue 10,000 10,500 11,000 Projected Operating Income (EBIT) 1,000 1,100 1,200 depreciation/Sales 10.00% 10.00% 10.00% Capital Expenditure/Sales 5.00% 5.00% 5.00% Interest Expense 300 300 300 Increase in Net Working Capital/Sales 2.00% 2.00% 2.00% Marginal Tax Rate 30.00% 30.00% 30.00% Weighted Average Cost of Capital (WACC) 10.00% 10.00% 10.00% Terminal Growth Rate (%) 4.00% 4.00% 4.00% Market Value of Debt 5,000 5,000 5,000 Number of Share Outstanding 200 200 200 Today FY1 FY2 FY3 EBIT (Earnings before Interest & Tax) Interest Expense Tax Net Income Depreciation Operating Cash Flow (OCF) Capital Expenditure Increase in Net Working Capital Free Cash Flow (FCF) Terminal Value PV of FCF and Terminal Value Sum of All PV ( Enterprise value) Market Value of Debt Value of Equity Number of Share Outstanding Share Price
Chapter14: Security Structures And Determining Enterprise Values
Section: Chapter Questions
Problem 8EP
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