t with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions. INPUTS (In Millions)   Projected   Year: 1 2 3 4 Free cash flow   $200 $280 $320 $340 Interest expense   $100 $120 $120 $140

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  • Start with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions.

INPUTS (In Millions)

 

Projected

 

Year:

1

2

3

4

Free cash flow

 

$200

$280

$320

$340

Interest expense

 

$100

$120

$120

$140

 

 

 

 

 

 

  1. Calculate the current value of unlevered operations. 
  2. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow).
  3. Calculate the current value of the tax shield.
  4. Calculate the current total value.
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