Consider a firm as follows: Assume that the firm has no debt. The cashflows are received at the end of each year and are perpetual. Cost of equity capital for an unlevered firm, r0, is 20%. The first cash-flow will be received one year from today. All calculations for valuation are done today. Firm value is defined as collective value of debt and equity.
Sales = $ 500,000
Cash Costs = 360,000
Operating Income = 140,000
Tax @ 34% -47,600
Unlevered cash flow (UCF) $ 92,400
Now assume that the firm has $126,229.50 of debt.
Interest rate on debt is 10%
Find the firm value using
d) APV method
$__________.
e) FTE method
$__________.
f) WACC method
$__________.