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  3. netphone inc expects the following: unlevered cf

Netphone Inc expects the following: unlevered CF before tax =$ 1million in perpetuity from...

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Accounting

  1. Netphone Inc expects the following:

unlevered CF before tax =$ 1million in perpetuity from the beginning of year 3 There is no income prior to that. Ignore loss carryovers for taxes.

Tax rate is 50%, amount of debt=0

R0 =10%

a. Find the value of Netphones today.

In the above example, netphone decides buyback some shares using 1 million dollars of perpetual debt. This is done today.

Rb =5%.

b. Find the Netphones equity value today.

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