Problem 2. Suppose we are planning to buy a company with the following forecasts: Year 1 2 3 & afterwards FCF $7 million

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Problem 2.
Suppose we are planning to buy a company with
the following forecasts:
Year
1
2
3 & afterwards
FCF
$7 million
$ 8.5 million
3.5% constant growth rate
Debt level
$75 million
$50 million
Constant debt to equity ratio. Capital will be 50% debt and 50%
equity, wd = ws = 0.5.
The cost of debt is 4%
The cost of equity is 25%
The tax rate is 30%
The company has 15 million shares outstanding
The current stock price is $3.05
The company is currently holding no financial assets.
The company has $3,750,000 in debt.
WACC, the cost of capital, is equal to 13.9%
RSU, the cost of unlevered equity, is equal to 14.5%
Calculate the value of the target.