Case study Example | Topics and Well Written Essays - 500 words - 4

Case Study Example Hence the only available option is $1250 thousand dollars. 5. The formula to calculate terminal value using the perpetuity method is given as: FCFn X (1+g) / WACC –g, where FCFn is the FCF for the last 12 months of the projection period, g is the perpetuity growth rate and WACC is the weighted average cost of capital. Using this formula, 6. Total interest expense from 1971 to 1976, based upon Exhibit 7 equals 3049 thousand. The actual Interest tax shield (interest expense X tax rate) in a given year equals the minimum of the calculated Its and the projected taxes before the ITS is applied. ITS for each year is thus given as follows: 7. The Adjusted Present Value method may be calculated as the sum of the FCFs discounted by the cost of the assets plus the interest tax shields which are discounted at the cost of debt. The present enterprise value of the corporation for 1971: The free cash flow available in 1971 is $726 thousand. The terminal value is $10,010. Therefore, the sum of PCF and TV is 10726. The interest tax shield available in 1971 is $99372; hence the present adjusted value of the enterprise is $10825372 or about $10 million. 8. Since the investors are prepared to provide $4750 thousand at the rate of 9%, the interest payable amounts to $2,137,500. In order to ensure that the investors are motivated to offer the large amount of capital, the company needs to make sure that they are allowed purchase at least 6 million shares as