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The free cash flow to the firm is reported as $205 million. The interest expense to the firm is $22 million. If the tax rate is 35% and the net debt of the firm increased by $25 million, what is the approximate market value of the firm if the FCFE grows at 2% and the cost of equity is 11%

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abiolataiwo2015

Answer:

$2,445

Explanation:.

Calculation for the approximate market value of the firm

First step is to calculate the FCFE

FCFE = 205 - 22(1 - .35) + 25

FCFE=205-22(.65) + 25

FCFE=205-14.3+ 25

FCFE = 215.70

Second Step is to calculate the Market Value

Market Value = (215.70×1.02)/(.11 - .02)

Market Value=220.014/0.09

Market Value= $2,445

Therefore the approximate market value of the firm will be $2,445

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