HCB\'s most recent and projected financial statements and projected free cash fl
ID: 2799575 • Letter: H
Question
HCB's most recent and projected financial statements and projected free cash flow are shown below. All items are expected to grow at 5% after the last year of projections.
2017 2018E 2019E
Debt $40.00 $47.00 $53.00
Interest expense $2.80 $3.30 $3.70
Free cash flow $17.00 $14.00 $22.00
Tax rate 40%
WACC 8%
Levered required return on equity 12%
Unlevered required return on equity 10%
growth rate after 2019 5%
28. Using the FCFE model, calculate the intrinsic value of HCB's equity as of the end of 2017.
a. $345.8
b. $363.1
c. $381.3
d. $400.3
e. $420.3 The answer is a. 345.8. Can someone explain how to do this?
Explanation / Answer
FCFE in 2018=14+(47-40)-3.30*(1-40%)=19.02
FCFE in 2019=22+(53-47)-3.70*(1-40%)=25.78
intrinsic value=19.02/1.12^1+25.78/1.12^2+((25.78*1.05)/(12%-5%))/1.12^2
=345.8
the above is answer
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.