1. You are evaluating a project for a local private equity fund, and they have provided the data below. The value of a firm can be calculated as the sum of a series of cash flows over time, as shown in the following formula. V 0 = Where: CFA + (1 + WACC)¹ CFA2 (1 + WACC)² CFA3 +...+ + (1 + WACC)³ CFA+V+ (1 + WACC)* CFA t+1 V = WACC - 9. t+1 CFA is "free cash flow" or FCF. And: WACC 15.67% FCF (mn $) $134 g1 4.13% g2 5.69% g3 (and beyond) 2.65% a) What is the value of the company under analysis? Provide the result of $000 (mn). WACC (E/V)× RE + (D/V) × RDX (1 - TC) 2. You will be working as an analyst for Berkshire Hathaway. To prepare for their interview, you were told they use different ways to calculate the cost of capital of the companies they buy. One of them is the Weighted Cost of Capital or WACC. The BH team provided the following data and asked you to calculate the WACC of a target company they are evaluating for acquisition. (in millions) Value of Equity $275 Yield of Debt 7.53% Value of Debt $897 Tax rate 13.51% Return equity 15.21% a. What is the company's total value using the value of debt and equity? Provide the result as $000 (mn). b. What is the weighted average cost of capital? Provide the result as x.xx%.
1. You are evaluating a project for a local private equity fund, and they have provided the data below. The value of a firm can be calculated as the sum of a series of cash flows over time, as shown in the following formula. V 0 = Where: CFA + (1 + WACC)¹ CFA2 (1 + WACC)² CFA3 +...+ + (1 + WACC)³ CFA+V+ (1 + WACC)* CFA t+1 V = WACC - 9. t+1 CFA is "free cash flow" or FCF. And: WACC 15.67% FCF (mn $) $134 g1 4.13% g2 5.69% g3 (and beyond) 2.65% a) What is the value of the company under analysis? Provide the result of $000 (mn). WACC (E/V)× RE + (D/V) × RDX (1 - TC) 2. You will be working as an analyst for Berkshire Hathaway. To prepare for their interview, you were told they use different ways to calculate the cost of capital of the companies they buy. One of them is the Weighted Cost of Capital or WACC. The BH team provided the following data and asked you to calculate the WACC of a target company they are evaluating for acquisition. (in millions) Value of Equity $275 Yield of Debt 7.53% Value of Debt $897 Tax rate 13.51% Return equity 15.21% a. What is the company's total value using the value of debt and equity? Provide the result as $000 (mn). b. What is the weighted average cost of capital? Provide the result as x.xx%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:1. You are evaluating a project for a local private equity fund, and they have provided the data below.
The value of a firm can be calculated as the sum of a series of cash flows over time, as shown in the
following formula.
V
0
=
Where:
CFA
+
(1 + WACC)¹
CFA2
(1 + WACC)²
CFA3
+...+
+
(1 + WACC)³
CFA+V+
(1 + WACC)*
CFA
t+1
V =
WACC
-
9.
t+1
CFA is "free cash flow" or FCF.
And:
WACC
15.67%
FCF (mn $)
$134
g1
4.13%
g2
5.69%
g3 (and beyond)
2.65%
a) What is the value of the company under analysis? Provide the result of $000 (mn).
Transcribed Image Text:WACC (E/V)× RE + (D/V) × RDX (1 - TC)
2. You will be working as an analyst for Berkshire Hathaway. To prepare for their interview, you were
told they use different ways to calculate the cost of capital of the companies they buy. One of them is
the Weighted Cost of Capital or WACC.
The BH team provided the following data and asked you to calculate the WACC of a target company
they are evaluating for acquisition.
(in millions)
Value of Equity
$275
Yield of Debt
7.53%
Value of Debt
$897
Tax rate
13.51%
Return equity
15.21%
a. What is the company's total value using the value of debt and equity? Provide the result as $000
(mn).
b. What is the weighted average cost of capital? Provide the result as x.xx%.
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