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
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
Section: Chapter Questions
Problem 1PS
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Question
- 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-yearforecasts offree 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 |
|
|
|
|
|
|
|
- Calculate the current value of unlevered operations.
- Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow).
- Calculate the current value of the tax shield.
- Calculate the current total value.
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