Blur Corp. has an expected net operating profit after taxes, EBIT(1 T), of $13,0
ID: 2549296 • Letter: B
Question
Blur Corp. has an expected net operating profit after taxes, EBIT(1 T), of $13,000 million in the coming year. In addition, the firm is expected to have net capital expenditures of $1,950on, and net operating working capital (NOWC) is expected to increase by $30 mllon. How much free cash flow (FCF) is Blur Corp. expected to generate over the next year? O $11,020 million $14,920 million O $219,883 million O $11,080 million Blur Corp.'s FCFs are expected to grow at a constant rate of 4.26% per year in the future. The market value of Blur Corp.'s outstanding debt is $58,204 million, and preferred stocks' value is $32,336 million. Blur Corp. has 450 lion shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 12.78%. Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table. Term Value (Millions) Total firm value Value of common equity Intrinsic value per shareExplanation / Answer
Free cash flow (FCF) = $11020 million
Explanation;
EBIT (1 – T) = $13000 million
Net capital expenditure = $1950 million
Net operating working capital (NOWC) = $30 million
Formula of Free cash flow (FCF) is as follow;
Free cash flow (FCF) = EBIT (1 – T) – Net capital expenditure – Net operating working capital (NOWC)
Now let’s put values in above given formula;
Free cash flow (FCF) ($13000 million – $1950 million – $30 million) = $11020 million
Calculation of value of firm;
Total value of firm = $129342.72 million (Approx.)
Explanation;
Following information are given;
FCF growth rate = 4.26%
Market value of debts = $58204 million
Market value of preferred stock = $32336
Number of common stock = $450 million
WACC = 12.78%
Formula of total value of firm is as follow;
Total value of firm = (FCF / WACC – Growth rate)
Now let’s put the values in the above formula;
Total value of firm = ($11020 / 12.78% – 4.26%)
Total value of firm = ($11020 / 0.1278 – 0.0426)
Thus total value of firm ($11020 / 0.0852) = $129342.72 million (Approx.)
Calculation of value of common equity;
Value of common equity = $38802.72 million (Approx.)
Explanation;
Following information are given;
Market value of debts = $58204 million
Market value of preferred stock = $32336
Total value of firm = $129342.72
Formula of value of common equity is as follow;
Value of common equity = (Total value of firm – Value of debts – Value of preferred stock)
Now let’s put the values in the above formula;
Value of common equity = ($129342.72 million – $58204 – $32336)
Value of common equity = $38802.72 million
Calculation of intrinsic value per share;
Intrinsic value per share = $86.23 (Approx.)
Explanation;
Following information are given;
Value of common equity = $38802.72 million
Number of common stock = $450 million
Formula of intrinsic value per share is as follow;
Intrinsic value per share = (Value of common equity / Number of common stock)
Now let’s put the values in the above formula;
Intrinsic value per share = ($38802.72 million / 450 million)
Intrinsic value per share = $86.23 (Approx.)