XYZ Corporation has free cash flow of $7,117 for the year December 31, 2015. It's free cash flow is expected to grow at the same rate as the economy as a whole, or 2.5% per year. The average unleveraged beta for five of its peers is 2.0, the 10 Year T Bond Rate is 4% and the Market Risk Premium is 5%.
XYZ has debt of $10,000 ($2,000 short-term and $8,000 long-term) which bears a 10% interest rate. The Debt Equity Ratio is 2.5 and its Marginal Tax Rate is 40%.
Our client is unsure about XYZ's Capital Structure going forward so we have decided to value XYZ using the Alternative Present Value (APV) method.
Calculate Enterprise Value and Equity Value as of December 31, 2015.