The cash flows in 2020 have been distributed. The firm’s enterprise value is evaluated as a claim to its cash flows starting from 2021.
finance
Description
You have the following information about the Kellogg Furniture Company (KFC).
• Annual sales in 2020 are $100,000. Sales are expected to grow at 3% a year.
• The cash flows in 2020 have been distributed. The firm’s enterprise value is evaluated as a claim to its cash flows starting from 2021.
• KFC’s profit margin is expected to be 26%.
• Tax rate is 0%.
• KFC is expected to reinvest 33% of its NOPAT in fixed assets and net working capital.
• KFC has an equity beta of 1.3.
• KFC is financed with 30% debt and 70% equity.
• KFC’s debt is risk free, with a beta of 0.
• The risk free rate of return is 2.5%, and the expected market risk premium is �(�� − ��) = 5%.
• Hint: Use asset beta if you are analyzing the cost of capital for the firm
