Interest Exp $ 8.64 $ 9.39 $ 10.20 $ 11.07 $ 12.03 $ 13.06 EBT $ 101.36 $ 111.61 $ 122.90 $ 135.34 $ 149.03 $ 156.05 Taxes $ 40.54 $ 44.65 $ 49.16 $ 54.13 $ 59.61 $ 62.42 Net Income $ 60.82 $ 66.97 $ 73.74 $ 81.20 $ 89.42 $ 93.63 - Reinvestment $ 55.00 $ 60.50 $ 66.55 $ 73.21 $ 80.53 $ 50.73 + New Debt Issued $ 10.68 $ 11.58 $ 12.55 $ 13.59 $ 14.71 $ 9.33 ! This is the new debt issued each FCFE $ 16.50 $ 18.05 $ 19.74 $ 21.58 $ 23.60 $ 52.22 Terminal Value of Equity $ 746.05 Present Value $ 14.73 $ 14.39 $ 14.05 $ 13.72 $ 436.72 Value of Equity = $ 493.61
Capital Structure Debt at end of year $ 123.40 $ 134.08 $ 145.66 $ 158.21 $ 171.80 $ 186.51 $ 195.84 ! This is 30% of each year's firm
Cost of Equity 12.00% 12% 12.00% 12.00% 12.00% 12.00%
Pre-tax Cost of Debt 7.00% 7% 7.00% 7.00% 7.00% 7.00% After-tax Cost of Debt 4.20% 4% 4.20% 4.20% 4.20% 4.20% Cost of Capital 10.44% 10.44% 10.44% 10.44% 10.44% 10.44% ! Computed using a 70% Equity; ratio. e present value of the cash flows to the firm each year; year 2, year 3…