Problem 3: Stock Valuation (FCFF approach) In 2000, Disney had earned an EBIT of $10,032 million.

Problem 3: Stock Valuation (FCFF approach)

In 2000, Disney had earned an EBIT of $10,032 million. The capital expenditures that were spent amounted to $4,620 million and depreciation was valued at $991 million. It locked $103 million of cash for the increase in net working capital.

We expect the company to grow in 3 stages: first, we expect the company's free cash flow to grow for the next five years by 6.8%, then after the 5th year, the growth rate will decline gradually (linearly) until 2009 to get to 2.75% that will be kept constantly fixed forever after 2009.

The effective tax rate for Disney is 31%

1)   Compute the Free Cash Flow to Firm for the years 2000 to 2009.

The cost of debt is 3.75% and the cost of equity is 8.52%. The weight of equity is 88.5% and

the weight of debt in the company's capital is 11.5%

2)   Calculate the Weighted Average Cost of Capital of the company.

3)   Determine the Terminal Value, knowing that the cost of capital of the firm decreases to 7.29% when the company enters the stable growth phase.

4)   Calculate the total value of the firm at the end of year 2000.

5)   Given a debt market value of $15,961 million, how much is the equity market value of the firm? Given that Disney had 376 million shares outstanding at the end of year 2000, how much is the equity value per share?