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You have been asked to value a firm with expected annual after-tax cash flows, before debt payments, of $150 million a year in perpetuity. The firm has a cost of equity of 12.5%, a market value of equity of $ 700 million and a market value of debt of $ 300 million. The debt is perpetual and the after-tax interest rate on debt is 7.00%. Estimate the cash flow to equity.

You have been asked to value a firm with expected annual after-tax cash flows, before debt payments, of $150 million a year in perpetuity. The firm has a cost of equity of 12.5%, a market value of equity of $ 700 million and a market value of debt of $ 300 million. The debt is perpetual and the after-tax interest rate on debt is 7.00%. Estimate the cash flow to equity.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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You have been asked to value a firm with expected annual after-tax cash flows, before debt payments, of $150 million a year in perpetuity. The firm has a cost of equity of 12.5%, a market value of equity of $ 700 million and a market value of debt of $ 300 million. The debt is perpetual and the after-tax interest rate on debt is 7.00%. Estimate the cash flow to equity.
Transcribed Image Text:You have been asked to value a firm with expected annual after-tax cash flows, before debt payments, of $150 million a year in perpetuity. The firm has a cost of equity of 12.5%, a market value of equity of $ 700 million and a market value of debt of $ 300 million. The debt is perpetual and the after-tax interest rate on debt is 7.00%. Estimate the cash flow to equity.
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