complete this correctly

| June 14, 2016

Question
Rasmussen College – BUS 330 – Week 10 Assignment
Maximum Points: 30
1.

A firm pays dividends of $5 million once annually. Analysts expect the dividends to remain at this amount indefinitely. The cost of equity is 14%.
a. Calculate the value of the firm.
b. Analysts now expect that dividends will grow annually by 3%. Calculate the firm value.

A.

The formula for valuing a firm using dividend payments is the except dividends then divided by 1 plus the cost of equity.

4,385,964.91

B.

The formula for valuing a firm with a growing dividend is the excepted divident muilpied by 1 minus the percentage of grow, then divide by 1 plus the cost of equity.

2.

A firm has expected free cash flows to the firm of $12 million annually which are expected to grow at 3.5% each year. It uses both debt and
equity. The cost of equity is 13% and the after-tax cost of debt is 7.5%. The debt to asset ratio is 40%. Calculate the value of the firm.

3.

A firm has the projected cash flows as indicated below.

4,254,385.96

a. Assuming the Year 5 free cash flow amount is expected to grow at 3% annually indefinitely and the firm has a Weighted Average Cost of
Capital (WACC) of 9.8% calculate the firm value.
b. If the market value of the debt is $170 million what is the value of equity?

Year
0
1
2
3
4
5

Free Cash Flow
to Firm
($ in millions)
$25
$30
$33
$35
$37
$38
B.

A
22.086
26.503
29.153
30.920
32.687
33.128
174.476
4.48

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