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Thomas Steel is a publicly traded steel company with an ageing steel plant. Thomas Steel is considering to upgrade existing plant (CAPX) by investing $ 2 million today: $0.4 million can be depreciated each year. The upgrade will increase the annual pre-tax operating income to $ 6 million. It requires ongoing net working capital of $0.5 million per year. The marginal tax rate is 35% and the cost of capital is 11% with a growth rate of 2%.

a. Estimate the FCF

b. Estimate the enterprise value of the company with 2% growth.

c. What is the stock price if there is 1 million share outstanding, $2 million in debt and $0.5 million in cash?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92411837

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