Trux Ltd is a listed company in the heavy vehicle industry. The market value of Trux Ltd's net debt is $800 million and the company has 250 million shares outstanding. Use this information to help answer the questions below.An analyst has collected the following information and wants to estimate the value of Trux's shares using the discounted free cash flow (FCF) model:Trux's FCF was $120 million in year 0 (historical FCF in the year just passed).Trux expects its FCF to grow by 10% per year for the next three years (in year 1, year 2 and year 3).Trux expects its FCF to grow by 4% per year indefinitely thereafter.The cost of equity is 15%.The cost of debt is 5%.The weighted average cost of capital is 12%.Using the discounted free cash flow model and the information above, what is the enterprise value of Trux?If a different analyst believes that the enterprise value of Trux Ltd is $2,500 million. According to this analyst, what will be the equity value per share of Trux Ltd?

The discounted free cash flow (DCF) model is a method of valuing a company by estimating its future…

Answered: Trux Ltd is a listed company in the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 8P

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Trux Ltd is a listed company in the heavy vehicle industry. The market value of Trux Ltd's net debt is $800 million and the company has 250 million shares outstanding. Use this information to help answer the questions below.

An analyst has collected the following information and wants to estimate the value of Trux's shares using the discounted free cash flow (FCF) model:

Trux's FCF was $120 million in year 0 (historical FCF in the year just passed).
Trux expects its FCF to grow by 10% per year for the next three years (in year 1, year 2 and year 3).
Trux expects its FCF to grow by 4% per year indefinitely thereafter.
The cost of equity is 15%.
The cost of debt is 5%.
The weighted average cost of capital is 12%.

Using the discounted free cash flow model and the information above, what is the enterprise value of Trux?

If a different analyst believes that the enterprise value of Trux Ltd is $2,500 million. According to this analyst, what will be the equity value per share of Trux Ltd?

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if the cash flow is grow for indefinite period then

isn't the present value calculated as = Cash Flow of last year / (Cost of equity - Growth Percentage)?

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