1. Assume that Orange Inc. has earnings before interest and taxes totaling $100 million and is expected to grow 5% in the future by investing 25% of their pretax cash flow annually. The firm reported depreciation of $4 million, debt totaling $20 million and pays 10% on that debt (which is the same as their cost of equity). The company’s effective tax rate is 30%. Use the free cash flow approach to value the firm’s equity.
2. A Treasury-bill with 150 days to maturity is selling at a bank discount ask yield of 3.3%. If the face value is $10,000, what is the price? What is its bond equivalent yield? What is its current yield?