A company has the following projected free cash flows: C1 = -$50,000,000Â Â C2 = -$40,000,000Â Â Â Â Â C3 = -30,000,000Â Â Â Â Â ...

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Finance

A company has the following projected free cash flows:
C₁ = -$50,000,000Â Â C₂ =-$40,000,000Â Â Â Â Â C₃ =-30,000,000Â Â Â Â Â C₄ = ????
(a) If you apply the growing perpetuity model with a growth rateof 6% and a discount rate of 10% beginning in time 4 and inperpetuity thereafter, what number do you need to insert forC₄ to have a market value of equity of 1 billion?
(b) If the company has $500,000,000 in semi-annual bondsoutstanding with 7.5% coupon and 12 years to maturity remaining,what is the market value of the bonds if the yield to maturity is6.25%?
(c) What is the market value of the assets of the company?
(d) If you valued the bonds using continuous compounding withthe same yield to maturity, show the calculation and the results ofthe bond valuation. (Note: the payments on the bond are made in theusual timing and amount).

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4.2 Ratings (521 Votes)

a target equity value 1 billion or 1000 million Discount Rate 10 Perpetual Growth Rate 6 C1 50000000 C2 40000000 and C3 30000000 Total Present Value of Negative Free Cash Flows During first three years 50 11 40 112 30 113 101052 million Now See Answer

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