You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources,...

70.2K

Verified Solution

Question

Finance

You are going to value Lauryn’s Doll Co. using the FCF model.After consulting various sources, you find that Lauryn's has areported equity beta of 1.5, a debt-to-equity ratio of 0.3, and atax rate of 40 percent. Assume a risk-free rate of 4 percent and amarket risk premium of 12 percent. Lauryn’s Doll Co. had EBIT lastyear of $45 million, which is net of a depreciation expense of $4.5million. In addition, Lauryn's made $4.25 million in capitalexpenditures and increased net working capital by $4.1 million.Assume the FCF is expected to grow at a rate of 2 percent intoperpetuity. What is the value of the firm? (Do not roundintermediate calculations. Enter your answer in millions rounded to2 decimal places.)
Firm value= million

Answer & Explanation Solved by verified expert

4.0 Ratings (802 Votes)

Solution Firm value 13685 millions Working Notes First of all we will calculate cost of capital of the firm for that we will get Beta of assets of the firm using Hamada equation B assets Beta equity1 debtequity x 1tax See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You are going to value Lauryn’s Doll Co. using the FCF model.After consulting various sources, you find that Lauryn's has areported equity beta of 1.5, a debt-to-equity ratio of 0.3, and atax rate of 40 percent. Assume a risk-free rate of 4 percent and amarket risk premium of 12 percent. Lauryn’s Doll Co. had EBIT lastyear of $45 million, which is net of a depreciation expense of $4.5million. In addition, Lauryn's made $4.25 million in capitalexpenditures and increased net working capital by $4.1 million.Assume the FCF is expected to grow at a rate of 2 percent intoperpetuity. What is the value of the firm? (Do not roundintermediate calculations. Enter your answer in millions rounded to2 decimal places.)Firm value= million