interest expenses are 150 million the current market value of phaneuf s outstanding 543656 | Homework Solutions

Do Pharn is evaluating Phaneuf Accelerateur using the FCFF and FCFE valuation approaches. Pham has collected the following information (currently in Euro):

  • Phaneuf has net income of 250 million, depreciation of 90 million, capital expenditures of 170 million, and an increase in working capital of 40 million.
  • Phaneuf will finance 40 percent of the increase in net fixed assets (capital expenditures less depreciation) and 40 percent of the increase in working capital with debt financing.
  • Interest expenses are 150 million. The current market value of Phaneuf”s outstanding debt is 1,800 million.
  • FCFF is expected to grow at 6.0 percent indefinitely, and FCFE is expected to grow at 7.0 percent.
  • The tax rate is 30 percent.
  • Phaneuf is financed with 40 percent debt and 60 percent equity. The before-tax cost of debt is 9 percent and the before-tax cost of equity is 13 percent.
  • Phaneuf has 10 million outstanding shares.

A. Using the FCFF valuation approach, estimate the total value of the firm, the total market value of equity, and the value per share.

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B. Using the FCFE valuation approach, estimate the total market value of equity and the value per share.

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