Tropetech Inc. has an expected net operating profit after taxes, EBIT (1 - T), of $2,400 million in the coming year. In addition, the firm is expected to have net capital expenditures of $360 million, and net operating working capital (NOWC) is expected to increase by $45 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year? $2,715 million $43,481 million $2,085 million $1,995 million Tropetech Inc.'s FCFs are expected to grow at a constant rate of 3.90% per year in the future. The market value of Tropetech Inc.'s outstanding debt is $11,510 million, and its preferred stocks' value is $6,394 million. Tropetech Inc. has 675 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 11.70%.

Question

Business

Nathalie Ochoa

12 September, 06:54

Tropetech Inc. has an expected net operating profit after taxes, EBIT (1 - T), of $2,400 million in the coming year. In addition, the firm is expected to have net capital expenditures of $360 million, and net operating working capital (NOWC) is expected to increase by $45 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year? $2,715 million $43,481 million $2,085 million $1,995 million Tropetech Inc.'s FCFs are expected to grow at a constant rate of 3.90% per year in the future. The market value of Tropetech Inc.'s outstanding debt is $11,510 million, and its preferred stocks' value is $6,394 million. Tropetech Inc. has 675 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 11.70%.

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Charisma · Answer 1

The computation is shown below:

The free cash flow is

= Expected net operating profit after taxes - net capital expenditure - net operating working capital

= $2,400 million - $360 million - $45 million

= $1,995 million

Now the total firm value is

= Free cash flow : (cost of capital - growth rate)

= $1,995 million : (11.70% - 3.90%)

= $1,995 million : 7.8%

= $25,576.92 million

Now the intrinsic value of equity is

= Total firm value - outstanding debt - preferred stock

= $25,576.92 million - $11,510 million - $6,394 million

= $7,672.92 million

And, the intrinsic value per share

= $7,672.92 million : 675 million shares

= $11.37 per share