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agoldberg2011 agoldberg2011
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2 months ago
Third Cup is considering purchasing Canadian Tea Inc. (CT). Third Cup, a high-end food and beverage retailer, has been provided with the following information for Canadian Tea, for the next year.

Expected values for CT next year:($)
EBIT7,440,000
Interest payments744,000
Depreciation and amortization expense372,000
Deferred taxes186,000
Increase in net working capital744,000
Net capital expenditures558,000
Corporate tax rate
42%

Third Cup has asked you to conduct the following analysis:
a) Estimate Canadian Tea's free cash flow to equity for next year.
b) Estimate the total value of Canadian Tea's equity, as well as on a per-share basis.

For purposes of this problem assume the following:
(i)A constant annual growth rate of free cash flow of 4.3% indefinitely
(ii)Canadian Tea has 650,000 shares outstanding.
(iii)The appropriate beta is 1.12.
(iv)The expected market return is 9.8 percent.
(v)The risk-free rate is 3.6 percent.
Textbook 
Corporate Finance

Corporate Finance


Edition: 5th
Author:
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okaymanokayman
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