Autumn Spring Limited has FCFF of ₹2.0 billion and FCFE of ₹1.5 billion. Autumn Spring's WACC is 11 percent, and its required rate of return for equity is 13 percent. FCFF is expected to grow forever at 7 percent, and FC

CS Professional · Valuations & Business Modelling · PYQS · December 2019
Autumn Spring Limited has FCFF of ₹2.0 billion and FCFE of ₹1.5 billion. Autumn Spring's WACC is 11 percent, and its required rate of return for equity is 13 percent. FCFF is expected to grow forever at 7 percent, and FCFE is expected to grow forever at 7.5 percent. Autumn Spring has debt outstanding of ₹20 billion. What is the total value of Autumn Spring's equity using the FCFF valuation approach?

Answer & Explanation:

The firm value is the present value of FCFF discounted at the WACC, or Firm Value = FCFF 1 / (WACC - g) = FCFF 0 (1+g) / (WACC - g) = 2.0 * (1 + 0.07) / (0.11 - 0.07) = 2.14 / 0.04 = 53.50 Billion The market value of equity is the value of the Firm minus the value of debt: Equity = ₹53.50 Billion - ₹20.0 Billion = ₹33.50 Billion

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