You are given the following information for a firm: EBIT x (1-T) this period Depreciation Net Working Capital Increase Asset Beta Capital Expenditures Growth Rate of FCF Risk Free Rate Market Risk Premium = = = = = $17 million $2.4 million $0 1.1 $3.7 million 9% 3% 6.3% Using the above data, what is the present value of all FCF? Don't forget that in applying the growing perpetuity formula, you have to use not this year's FCF, but next period's FCF (multiply this period's FCF by (1+ growth rate of FCF). Your answer should be in $millions. For example, if your answer is $7.34 million, then enter 7.34 in the answer box.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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