Problem
Colvin Ltd., a vegan product manufacturer, depends on two sources of financing: bond issues and common stock. In the following table, you can see the market value of these two sources as well as required rates of return: Market Value Required Return Bonds $624,000,000 5.00% Common stock $936,000,000 7.00% Total $1,560,000,000 Other financial information: Net income available to common shareholders $137,280,000 Interest expenses $78,000,000 Depreciation $49,920,000 Investment in fixed capital $87,360,000 Investment in working capital $24,960,000 Net borrowing $31,200,000 Tax rate 25% Stable growth rate of FCFF 2% Stable growth rate of FCFE 2.5%
a) Calculate Colvin Ltd.'s WACC.
b) From the information above, calculate the company's latest FCFF.
c) Using FCFF, what is the present value of the firm and the present value of the equity?
d) From the information above, calculate the company's latest FCFE.
e) Using FCFE, what is the present value of the equity?