Answered>Order 5627

You are in your first year as financial analyst within a large corporation which is considering a new acquisition (TagCo) to support its long term growth. You have been given the following information on TagCo:

• Current Free Cash Flow to the Firm (FCFF) =$745 millions
• Outstanding shares= 309.39 million
• Equity beta = 0.90, risk-free rate = 5.04%; equity risk premium = 5.5%
• Cost of debt = 7.1%
• Marginal tax rate = 34%
• Capital structure: 20% debt, 80% equity
• Long-term debt = $1.518 billion
• Growth rate of FCFF =
• 8.8% annually in years 1-4;
• 7.4% in year 5, 6.0% in year 6, 4.6% in year 7;
• 3.2% in year 8 and thereafter.

Required:

From the information provided to you above, estimate the following:

a) TagCo Weighted Average Cost of Capital (WACC);

b) Total value of the firm;

c) Total value of equity;

d) Value per share.

Show all your calculations to derive the above estimates.