Conway Enterprises is a privately owned retail company that is expected to generate $10 million...
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Conway Enterprises is a privately owned retail company that is expected to generate $10 million in free cash flows next year. The firm is all equity funded and its cash flows are expected to grow at 3% a year forever. The cost of equity for a publicly traded retail firm is 7.6% and the debt to equity ratio for public retail firms is 25%; the tax rate is 40% for all firms. Estimate the value of Conway Enterprises in a private transaction (where the buyer will be completely undiversified), if 40% of the risk in a retail firm comes from the market. (The risk free rate is 3% and the equity risk premium is 5%.) A. $ 100.00 B. $ 150.00 C. $ 200.00 D. $ 238.00 E. $ 250.00
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