In: Finance
Do Pham is evaluating Phaneuf Accelerateur by using the FCFF and
FCFE valuation
approaches. Pham has collected the following information (currency
in euros):
• Phaneuf has net income of €250 million, depreciation of €90
million, capital expenditures
of €170 million, and an increase in working capital of €40
million.
• Phaneuf will finance 40 percent of the increase in net fixed
assets (capital expenditures
less depreciation) and 40 percent of the increase in working
capital with debt financing.
• Interest expenses are €150 million. The current market value of
Phaneuf’s outstanding
debt is €1,800 million.
• FCFF is expected to grow at 6.0 percent indefinitely, and FCFE is
expected to grow at
7.0 percent.
• The tax rate is 30 percent.
• Phaneuf is financed with 40 percent debt and 60 percent equity.
The before-tax cost of
debt is 9 percent, and the before-tax cost of equity is 13
percent.
• Phaneuf has 10 million outstanding shares.
Using the FCFE valuation approach, estimate the total market
value of equity and the
per-share value of equity.