Company X: unlevered cost of equity
Please could you assist me with the following question?
Company X has a cost of equity of 10%, 25% of its financing is in the form of 6% debt, the rest is shareholder’s equity. Assume that the tax rate is 10%.
We are given further info i.e.
Free cash flow
Year 1 = $20mio
Year 2 = $40mio
Year 3 = $50mio
Year 1 = $56mio
Year 2 = $48mio
Year 3 = $44mio
After Year 3, the cash flows are expected to grow at a constant rate of 5%. At this time, the capital structure will stabilize at 40% debt with an interest rate of 7%
Please could you provide me with hints to calculate Company X’s…
– unlevered cost of equity
– levered cost of equity and cost of capital for the post horizon period
– using the adjusted present value approach, what is the value of operations to company X?
>> No other info is given e.g. risk free rate, risk premium…