Flatworld Airlines Inc. is expected to generate free cash flow of $308.834 million at the end of the year. Analysts expect Flatworld's cash flows to grow in perpetuity at the rate of 2.5%. Flatworld has debt worth $1,667.67 million. The annual coupon rate is 8% and the yield on the bonds is also 8%. Flatworld's debt-to-value ratio is 40% and management plan to maintain that ratio in perpetuity. Flatworld's stockholders require a return of 13%. The tax rate is 34%. Use this information to answer the questions that follow. Part 1 What is free cash flow to equity? Express your answer in millions of dollars rounded to one decimal place. Free cash flow to equity = $ M Part 2 What is the value of the equity using the FCFE approach? Express your answer in millions of dollars rounded to one decimal place. Value of equity = $ M Part 3 What is the value of the equity using the DCF/WACC approach? Express your answer in millions of dollars rounded to one decimal place. Value of equity = $ M

Flatworld Airlines Inc. is expected to generate free cash flow of $308.834 million at the end of the year. Analysts expect Flatworld's cash flows to grow in perpetuity at the rate of 2.5%. Flatworld has debt worth $1,667.67 million. The annual coupon rate is 8% and the yield on the bonds is also 8%. Flatworld's debt-to-value ratio is 40% and management plan to maintain that ratio in perpetuity. Flatworld's stockholders require a return of 13%. The tax rate is 34%. Use this information to answer the questions that follow. Part 1 What is free cash flow to equity? Express your answer in millions of dollars rounded to one decimal place. Free cash flow to equity = $ M Part 2 What is the value of the equity using the FCFE approach? Express your answer in millions of dollars rounded to one decimal place. Value of equity = $ M Part 3 What is the value of the equity using the DCF/WACC approach? Express your answer in millions of dollars rounded to one decimal place. Value of equity = $ M

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 12P

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