The MoMi Corporation’s cash flow from operations before interest and taxes was $2.5 million in the...

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The MoMi Corporation’s cash flow from operations before interestand taxes was $2.5 million in the year just ended, and it expectsthat this will grow by 5% per year forever. To make this happen,the firm will have to invest an amount equal to 19% of pretax cashflow each year. The tax rate is 21%. Depreciation was $310,000 inthe year just ended and is expected to grow at the same rate as theoperating cash flow. The appropriate market capitalization rate forthe unleveraged cash flow is 12% per year, and the firm currentlyhas debt of $5 million outstanding. Use the free cash flow approachto calculate the value of the firm and the firm’s equity.(Enter your answer in dollars not inmillions.)

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3.7 Ratings (326 Votes)

Value of the firm 23476500 Value of the firms equity 18476500 Value of Firms Equity using free cash flow approach Particulars Amount Cash flow from operations before See Answer

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The MoMi Corporation’s cash flow from operations before interestand taxes was $2.5 million in the year just ended, and it expectsthat this will grow by 5% per year forever. To make this happen,the firm will have to invest an amount equal to 19% of pretax cashflow each year. The tax rate is 21%. Depreciation was $310,000 inthe year just ended and is expected to grow at the same rate as theoperating cash flow. The appropriate market capitalization rate forthe unleveraged cash flow is 12% per year, and the firm currentlyhas debt of $5 million outstanding. Use the free cash flow approachto calculate the value of the firm and the firm’s equity.(Enter your answer in dollars not inmillions.)