Stock ACM has a 7% cost of debt and 12% cost of equity. The company has a debt to capital ratio of 40%, and is in the 35% tax bracket. The company’s free cash flow to the firm (FCFF) was $150 million last year and is expected to grow at 3% annually. The firm has 50 million shares outstanding and $500 million of debt outstanding.
a. Calculate the firm’s weighted average cost of capital.
b. Calculate the value of the firm using the constant growth model and the firm’s FCFF.
c. Calculate the value of equity per share.