Explore BrainMass
Share

Calculating Firm Value.

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

APV Valuation

Assumptions
Unlevered cost of equity: 12%
Borrowing Rate: 8%
Tax Rate: 30%
Current Debt Outstanding: $200.00

Years 1 2 3 4 & Beyond
Firm Free Cash Flows $100.00 $120.00 $180.00 $200.00
Interest-bearing Debt 200.00 150.00 100.00 50.00
Interest Expense 16.00 12.00 8.00 4.00
Interest tax savings 4.80 3.60 2.40 1.20

a) What is the value of the unlevered firm, assuming that its free cash flows for Year 5 and beyond are equal to the Year 4 free cash flow?

b) What is the value of the firm's interest tax savings, assuming that they remain constant for Years 4 and beyond?

c) What is the value of the levered firm?

d) What is the value of the levered firm's equity (assuming that the firm's debt is equal to its book value)?

© BrainMass Inc. brainmass.com December 20, 2018, 2:58 am ad1c9bdddf
https://brainmass.com/business/discounted-cash-flows-model/calculating-firm-value-enterprise-valuations-239467

Attachments

Solution Summary

The solution provides the techniques and manner for calculating firm value.

The firm value is calculated by estimating the present value of the free cashflow.

$2.19