1) Assume there is a company with (all next years estimates): EBIT of $6,500,000. A...
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1) Assume there is a company with (all next years estimates): EBIT of $6,500,000. A tax rate of 25% Depreciation expenses of $250,000. Capital expenditures of $300,000. Net Working capital last year of $700,000 and this coming year of $850,000.
Assume the company has capital components: Debt of $20,000,000. Assume if the company were to issue debt or take out a loan the interest cost would be 6.5%. 80,000 preferred share outstanding trading at $25/per share and a $1.80 annual dividend. The book value of Common equity is $50,000,000. Their common shares trade at $60/per share in the market and there are 1,500,000 shares outstanding. Assume the company has a beta of 1.1. The risk-free rate is 3% (on 10-year US Treasuries) and the market risk premium is 4.50%.
1)->What is this companys WACC? ->What is this companys intrinsic enterprise value (total Firm Value) assuming free cash flow is expected to grow at a 3% rate into perpetuity? (looking for the FCF valuationnot the current market value of all the capital components!)
2)->What is this companys intrinsic value per common share based on your estimate above?
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