Golden Eye Co., a hi-tech satellite company, has asked you to value the company for possible cross-listing in the U. S. The company has estimated revenues, earnings before interest and taxes, change in net working capital, and Net Capital spending (defined as Capital spending – depreciation) for the next three years (see Exhibit 1 below.) The free cash flow in year 4 is estimated to be $250 million and is expected to grow at 4% forever. The tax rate is 36%. The company’s unlevered cost of capital is 16.43%. Golden Eye Co. has just borrowed $1 billion of long-term debt at 9% interest rate. It will repay $200 million per year in the first three years, and then will maintain the debt at $400 million forever. What is the value of the firm? Exhibit 1:
Year T=1 T=2 T=3
Revenues 6,619 7,417 8,564
EBIT 540 680 750
Net Capital spending 150 170 190
Change in NWC 70 75 80

Explanation:

Let's first determine the free cash flow of the firm

Particulars                            Years

                          1                         2                   3

EBIT                  540                   680                750

Tax at 36%    (0.36*540)       (0.36*680)        (0.36*750)    

Less:               345.6                  435.2            480

Net Capital -

Spending            150                   170                 190

Change in NWC    70                    75                  80      

Less:                    125.6              190.2                210

The terminal value at the end of T =(3  years) is:

= 2011.26

Finally, the value of the firm can be computed as follows:

Years                  Free Cash Flow        PVIF           PV

1                          125.6                        0.6589        107.88

2                         190.2                        0.7377         140.31

3                          210                           0.6336       133.06

Terminal Value  2011.26                    0.6336        1294.33    

Value of the firm   ⇒                                               $1655.58

forbearance of student loan payments. under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. if you don't pay the interest during that period, the interest may be “capitalized,” which means it is added to your principal balance.

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