Question
In: Finance
1. Financial Corporation plans to acquire Great Western Inc. In the current year the free cash...
1. Financial Corporation plans to acquire Great Western Inc. In the current year the free cash flow to firm (FCFF) of Great Western Inc is $20 million. It is projected to grow at 20% per year for the next five years. After the first five years it is expected to grow at a more modest 10% per year. The Financial Corporation estimates that the target firm’s cost of capital will be 20% during the next five years and then will drop to 15% after the fifth year. Calculate the enterprise value of Great Western Inc. Assume Great Western Inc has no non-operating assets, non-operating liabilities and cash. Show all your workings.
2. What are the primary objectives of leveraged recapitalization?
Solutions
Expert Solution
PV of Free Cash Flow = Free Cash Flow / (1+Cost of Capital)n
Enterprise Value = Sum of Present value of free cash flow
jeff jeffy answered 1 year agoRelated Solutions
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2019
Sales
$
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Operating costs excluding depreciation
9,566
8,676
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410
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Earnings before interest and taxes
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220
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Pre-tax income
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Taxes (25%)
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December 31
(Millions of Dollars)
2020
2019
Sales
$
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$
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Operating costs excluding depreciation
9,536
8,684
Depreciation and amortization
340
320
Earnings before interest and taxes
$
1,124
$
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260
200
Pre-tax income
$
864
$
796
Taxes (25%)
216
199
Net income available to common stockholders
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