Blue Co., a company with 25% tax rate, has a free cash flow of P150,000,000 for the next year and is expected to grow at the rate of 4% constantly. The firm maintains a debt-to-equity ratio of 25%. The after-tax cost of debt and equity is 5% and 10%, respectively. Blue Corp. has 10,000,000 outstanding shares, and the combined market value of debt and preferred stock is P1,500,000,000. Compute for the per share intrinsic value of Blue Co.
Blue Co., a company with 25% tax rate, has a free cash flow of P150,000,000 for the next year and is expected to grow at the rate of 4% constantly. The firm maintains a debt-to-equity ratio of 25%. The after-tax cost of debt and equity is 5% and 10%, respectively. Blue Corp. has 10,000,000 outstanding shares, and the combined market value of debt and preferred stock is P1,500,000,000. Compute for the per share intrinsic value of Blue Co.
Chapter9: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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