Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a marketvalue of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division'sestimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, thefirm expects its free cash flow to grow at 4% annually.a.b.C.Year (t)2013201420152016Free cash flow (FCF₂)$ 800,0001,200,0001,400,0001,500,000Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division.Use your finding in part a along with the date provided above to find the division's common stock value.If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in partb to calculate its value per share.

a. The value of the entire division is the present value of its free cash flows and terminal value.…

Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a market value of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division's estimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, the firm expects its free cash flow to grow at 4% annually. Year (f) 2013 2014 2015 2016 Free cash flow (FCF₂) $ 800,000 1,200,000 1,400,000 1,500,000 b. a. Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division. Use your finding in part a along with the date provided above to find the division's common stock value. If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in part b to calculate its value per share. C.

Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a market value of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division's estimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, the firm expects its free cash flow to grow at 4% annually. Year (f) 2013 2014 2015 2016 Free cash flow (FCF₂) $ 800,000 1,200,000 1,400,000 1,500,000 b. a. Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division. Use your finding in part a along with the date provided above to find the division's common stock value. If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in part b to calculate its value per share. C.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 8P

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