Determine free cash flow

| August 31, 2017

Question
Pigeon River Brown Ale
Cost of Capital
Proportions of Long-term Debt and Equity Financing
Current market price of stock= $2.40 Per share
Shares of common stock outstanding (thousands)= 6,326 From Actual worksheet’s financial statements, in thousands
Current market value of equity= $15,182 Price per share multiplied by shares outstanding
Book value of long-term debt= $ 6,544 From Actual worksheet’s financial statements tab
Current ratio of book value of debt to sum of book value of debt and market value of equity= 30.1% Calculated from above info
Target ratio of book value of debt to sum of book value of debt and market value of equity= 30.1% Judgment, based on historical ratios in Hist Analys sheet
and market conditions.
Target ratio of market value of equity to sum of book value of debt and market value of equity= 69.9% = 1 – debt ratio
Estimate Cost of Equity
Beta= 0.70 Given
Risk-free rate= 4.0% Given
Market risk premium = 6.0% Given
Cost of equity= 8.2% Calculated from above info
Cost of Debt
Interest rate on debt= 8.0% From Inputs worksheet
Tax rate= 30.0% From Inputs worksheet
After-tax cost of long-term debt= 5.6% Calculated from above info
Calculation of WACC
WACC= 7.44% Calculated

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