Digital Everywhere Inc
We will calculate cost of equity at growth of 3%.
Cost of equity = = 7%+1.225(6%) = 0.1435 or 14.35%
Cost of debt = 0.10(1-0.35) = 0.065
WACC= 1*14.35%+0*0.065= 14.35%, (1+WACC= 15.35%)
FCFF= EBIT (1-tax rate) +depreciation-capital expenditure- change in working capital
Change in NFA = Ending NFA – Beginning NFA and Net earnings as EBIT (1-tax rate).
Working capital = Current asset+1000- Current liabilities-cash
Change in Working capital = Ending WC– Beginning WC
Tax rate = 35%
WACC= cost of equity
Terminal Value= TV= FCFFn × (1+g)/ (WACC – g)
Following table summarizes the impact of growth of 5% with changes in operation of cash flow and expected value of the firm.
Growth rate
WACC
FCFF
Value of firm
Probability
Weighted value of firm
3%
14.35%
100%
$76,481.712
30%
$22,944.52
3%
14.35%
50%
$32,882.04
30%
$9,864.61
3%
14.35%
0%
$0
40%
0
Total Value
$32,809.132
At growth rate of 3%, the expected value of Digital Everywhere is $32,809.132
Growth rate
WACC
FCFF
Value of firm
Probability
Weighted value of firm
2%
13%
100%
$71,682.61
30%
$21,504.783
2%
13%
50%
$35,841.30
30%
$10,752.39
2%
13%
0%
$0
40%
0
Total Value
$32,257.173
At modest growth rate of 2%, the expected value of Digital Everywhere is $32,257.173
Cost of equity = = 7%+1.225(6%) = 0.1435 or 14.35%
Cost of debt = 0.10(1-0.35) = 0.065
WACC= 1*14.35%+0*0.065= 14.35%, (1+WACC= 15.35%)
FCFF= EBIT (1-tax rate) +depreciation-capital expenditure- change in working capital
Change in NFA = Ending NFA – Beginning NFA and Net earnings as EBIT (1-tax rate).
Working capital = Current asset+1000- Current liabilities-cash
Change in Working capital = Ending WC– Beginning WC
Tax rate = 35%
WACC= cost of equity
Terminal Value= TV= FCFFn × (1+g)/ (WACC – g)
Following table summarizes the impact of growth of 5% with changes in operation of cash flow and expected value of the firm.
Growth rate
WACC
FCFF
Value of firm
Probability
Weighted value of firm
3%
14.35%
100%
$76,481.712
30%
$22,944.52
3%
14.35%
50%
$32,882.04
30%
$9,864.61
3%
14.35%
0%
$0
40%
0
Total Value
$32,809.132
At growth rate of 3%, the expected value of Digital Everywhere is $32,809.132
Growth rate
WACC
FCFF
Value of firm
Probability
Weighted value of firm
2%
13%
100%
$71,682.61
30%
$21,504.783
2%
13%
50%
$35,841.30
30%
$10,752.39
2%
13%
0%
$0
40%
0
Total Value
$32,257.173
At modest growth rate of 2%, the expected value of Digital Everywhere is $32,257.173