Compressed APV with Nonconstant Growth
Sheldon Corporation projects the following free cash flows (FCFs) and interest expenses for the next 3 years, after which FCF and interest expenses are expected to grow at a constant 6% rate. Sheldonâs unlevered cost of equity is 13% its tax rate is 35%.
Year 1 2 3 Free cash flow ($ millions) $20 $30 $40 Interest expense ($ millions) $8 $9 $10
A) What is Sheldonâs unlevered horizon value of operations at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
B) What is the current unlevered value of operations? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
C) What is horizon value of the tax shield at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
D) What is the current value of the tax shield? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
E) What is the current total value of the company? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
Compressed APV with Nonconstant Growth
Sheldon Corporation projects the following free cash flows (FCFs) and interest expenses for the next 3 years, after which FCF and interest expenses are expected to grow at a constant 6% rate. Sheldonâs unlevered cost of equity is 13% its tax rate is 35%.
| Year | |||
| 1 | 2 | 3 | |
| Free cash flow ($ millions) | $20 | $30 | $40 |
| Interest expense ($ millions) | $8 | $9 | $10 |
A) What is Sheldonâs unlevered horizon value of operations at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
B) What is the current unlevered value of operations? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
C) What is horizon value of the tax shield at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
D) What is the current value of the tax shield? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
E) What is the current total value of the company? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.
