The common stock of Buildwell Conservation & Construction, Inc., has a beta of .

Question

The common stock of Buildwell Conservation & Construction, Inc., has a beta of .90. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCI's capital structure is 30% debt, paying a 5% interest rate, and 70% equity. Buildwell pays tax at 40%. You need to estimate the value of Buildwell Conservation. You have the following forecasts (in millions of dollars) of Buildwell's profits and of its future investments in new plant and working capital: 1 2 3 4 Earnings before interest, taxes, depreciation, and amortization (EBITDA) 80 100 115 120 Depreciation 20 30 35 40 Pretax profit 60 70 80 80 Investment 12 15 18 20 From year 5 onward. EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Estimate the company's total value and the separate values of its debt and equity. (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) Total value $ million Debt value $ million Equity value $ million

Explanation / Answer

Hi, We need to calculate free cash flows in the first step: Year 1 EBITDA = 80 Depreciation = 20 Profit before tax = 3

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