FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:Given the forecast below, estimate the fair market value per share of Kenmore Air's equity at the end of 2017 if the
company has 50 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date
equals $300 million. Assume that after 2021, earnings before interest and tax will remain constant at $220 million,
depreciation will equal capital expenditures in each year, and working capital will not change. Kenmore Air's weighted-
average cost of capital is 11 percent and its tax rate is 40 percent.
Forecast for Kenmore Air, Inc.
Year
2018 2019 2020 2021
-40
85
97
112
Free cash flow ($ millions)
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