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Question: Caballos, Inc., has a debt to capital ratio of 10%, a beta of 1.9 and a pre-tax cost of debt of 5.5%. The firm had earnings before interest and taxes of $ 657 million for the last fiscal year, after depreciation charges of $ 261 million. The firm had capital expenditures of $ 342 million, and non-cash working capital increased by $ 51 million. The firm also had a book value of capital of $ 2.1 billion at the beginning of the last fiscal year. (The treasury bond rate is 4.6 %, the market risk premium is 6.3 % and the firm has a tax rate of 40 %). Assume that the firm is in stable growth, and that the return on capital and reinvestment rates for the last fiscal year can be sustained forever. Estimate the FCFF.

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Category:- Basic Finance
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