Part A Using the following free cash flows and cost of equity = 7%, discount FCF year 1 back to time 0 (today). FCF year 1 = 500; FCF year 2 = 520; FCF year 3 = 560; FCF year 4 = 590; FCF year 5 = 610 a) 429.36 b) 467.29 c) 512.85 d) 422.10

Part A Using the following free cash flows and cost of equity = 7%, discount FCF year 1 back to time 0 (today). FCF year 1 = 500; FCF year 2 = 520; FCF year 3 = 560; FCF year 4 = 590; FCF year 5 = 610 a) 429.36 b) 467.29 c) 512.85 d) 422.10

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 7P: Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital...

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Question

Part A
Using the following free cash flows and cost of equity = 7%, discount FCF year 1 back to time 0 (today).

FCF year 1 = 500; FCF year 2 = 520; FCF year 3 = 560; FCF year 4 = 590; FCF year 5 = 610

a) 429.36

b) 467.29

c) 512.85

d) 422.10

Part B

Using the following expected interest payments, cost of debt = 5%, and tax-rate = 21%, discount the year 4 expected payment back to time 0 (today).

Expected interest year 1 = 50; year 2 = 35; year 3 = 20; year 4 = 10; 5 = 0

a) 9.31

b) 10.11

c) 13.65

d) 6.50

Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.

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