Purchase Solution

Computing the Value of Operations and Equity

Not what you're looking for?

Ask Custom Question

Name______________________________________

FINC 5880
Session 9
Shares outstanding 10,000,000 FCF0 5,000,000
Target debt in capital structure 30% Constant growth rate 6%
Debt interest rate 8% Beta 1.2
rRF 3% Amount of debt 5,000,000
Market risk premium 7%
Tax rate 30%

a. Calculate the required rate of return on equity using equation: rs= rRF + RPM(b)

b. Calculate weighted average cost of capital, using equation: WACC = Wdrd(1-%) + wsrs

c. Calculate the value of operations, using equation: Vops = FCF0(1+g)/WACC - g)

d. Calculate the value of the company's equity, using equation: Vs = Vops - debt

e. Calculate the current value of the company's stock.

Attachments
Purchase this Solution

Solution Summary

This solution takes the student through the process of finding the value of each share outstanding by computing the cost of equity using the Capital Asset Pricing Model, the after-tax cost of debt, the weighted-average cost of capital, the value of operations, the value of equity, and finally the value of each share. It is very comprehensive.

Purchase this Solution


Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Introduction to Finance

This quiz test introductory finance topics.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.