Question #127
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 63
Status: Unattempted
Question
Industrial Light currently has: Free cash flow to equity = $4.0 million. Cost of equity = 12%. Weighted average cost of capital = 10%. Total debt = $30.0 million. Long-term expected growth rate = 5%. What is the value of equity?
Answer Choices:
A. $57,142,857
B. $27,142,857
C. $60,000,000
Explanation
The value of equity is [($4,000,000)(1.05) / (0.12 – 0.05)] = $60,000,000.