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 FCFE valuation approach?

Answer & Explanation:

Using the FCFE valuation approach, we find the present value of FCFE discounted at the required rate of return on equity to be Firm Value = FCFE 1 / (r - g) = FCFE 0 (1+g) / (r - g) = 1.5 * (1.075) / (0.13 - 0.075) = 1.6125 / 0.055 = ₹29.32 Billion The value of equity using this approach is = ₹29.32 Billion

Topics: Valuation

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic