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A valuation exercise for an established company has resulted in a valuation of Rs 500 lacs, based on expected free cash flow of Rs 20 lacs next year and an expected growth rate of 5%. It was later found that the analyst made a mistake- he used the book value of debt and equity on calculations instead of market value. The book values are not available, but you know that:

a. Cost of equity is 12%

b. After Tax cost of debt is 6%

c. Market value of equity is thrice that of its book value and for debt both the values are equal Estimate the correct value of the company.

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Financial Management, Finance

Category:- Financial Management
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