土豆妮

A firm has projected free cash flow to equity next year of $1.25 per share, $1.55 in two years, and a terminal value of $90.00 two years from now, as well. Given the firm’s cost of equity of 12%, a weighted average cost of capital of 14%, and total outstanding debt of $30.00 per share, what is the current value of equity?

A) $41.54.

B) $71.74.

C) $74.10.

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Value of equity = $1.25 / (1.12)¹ + $1.55 / (1.12)² + $90.00 / (1.12)² = $74.10

土豆妮

A firm's free cash flow to the firm (FCFF) in the most recent year is $80M and is expected to grow at 3% per year forever. If the firm has $100M in debt financing and its weighted average cost of capital is 10%. The value of the firm's equity using the single-stage FCFF model is:

A) $1,177M.

B) $1,043M.

C) $1,077M.

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The value of the firm's equity is equal to the value of the firm minus the value of the debt. Firm value = $80M × 1.03 / (0.10 ? 0.03) = $1,177M, so equity value is $1,177M ? $100M = $1,077M.