You have been asked to estimate the value of General Communications, a telecomm firm. General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax cost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in 2020 (fiscal year end is March 31, 2020), kfter depreciation charges of $300 million. The firm had capital expenditures of $360 million, and non-cash working capital increased by $50 million during 2016. The firm also had a book value of capital of $ 2 billion at the beginning of 2019 fiscal year. 3. (The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rate of 40%). Assuming that the firm is in stable growth, and that the return on capital and reinvestment rates from 2019 can be sustained forever. Estimate the value of the firm at the beginning of 2020 fiscal year.
You have been asked to estimate the value of General Communications, a telecomm firm. General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax cost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in 2020 (fiscal year end is March 31, 2020), kfter depreciation charges of $300 million. The firm had capital expenditures of $360 million, and non-cash working capital increased by $50 million during 2016. The firm also had a book value of capital of $ 2 billion at the beginning of 2019 fiscal year. 3. (The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rate of 40%). Assuming that the firm is in stable growth, and that the return on capital and reinvestment rates from 2019 can be sustained forever. Estimate the value of the firm at the beginning of 2020 fiscal year.
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:You have been asked to estimate the value of General Communications, a telecomm firm.
General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax
cost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in
2020 (fiscal year end is March 31, 2020), kfter depreciation charges of $300 million. The
firm had capital expenditures of $360 million, and non-cash working capital increased by
$50 million during 2016. The firm also had a book value of capital of $ 2 billion at the
beginning of 2019 fiscal year.
3.
(The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rate
of 40%). Assuming that the firm is in stable growth, and that the return on capital and
reinvestment rates from 2019 can be sustained forever.
Estimate the value of the firm at the beginning of 2020 fiscal year.
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