question archive In the recent year the “D&V Corporation” earned $75 million before interest and taxes
In the recent year the “D&V Corporation” earned $75 million before interest and taxes
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In the recent year the “D&V Corporation” earned $75 million before interest and taxes. Capital expenditures were $25 million, and depreciation was $50 million, working capital expenses were $10 million. The firm's WACC is 16%, the marginal tax rate is 20%, and the expected future cash flow growth rate is 6%. The market value of debt is $650 million. Please calculate the value of the firm's equity.
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Free Cash Flow =EBIT*(1-Tax Rate)+Depreciation-Increase in Working capital -Increase in capital expenditure
=75*(1-20%)+50-10-25 =75
The Value of the firm =Free cash flow*(1+g)/(WACC-g) =75*(1+6%)/(16%-6%) =795
Value of the firm's equity =Value of the firm -Market Value of debt =795-650 =145
