You are newly appointed as the CFO of KFC. Your first job is to analyse a valuation done on the KFC by the previous CFO.

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You Are Newly Appointed As The Cfo Of Kfc Your First Job Is To Analyse A Valuation Done On The Kfc By The Previous Cfo 1 (50.94 KiB) Viewed 9 times

You are newly appointed as the CFO of KFC. Your first job is to analyse a valuation done on the KFC by the previous CFO. Based on expected free cash flow next year of £40m and an expected growth rate of 5% for the foreseeable future, the previous CFO has estimated a value of £2000m. However, the previous CFO has made the mistake of using the book values of debt and equity in his calculation. While you do not know the book value weights he used, you know that the firm has a cost of equity of 17% and an after-tax cost of debt of 6%. You also know that the market value of equity is four times the book value of equity, while the market value of debt is equal to the book value of debt. 1. (a) Calculate the book value weights of equity (E/V). 2. (b) Calculate the market value weights of equity (E/V). 3. (c) Estimate the correct value for the firm. 4. (d) Niceday Hotel is presented with a new project with an internal rate of return of 15%, should it accept the project? Why?