Using the flow to equity methodology,what is the value of the equity claim?

Question

Quizplus · Accepted Answer

The flow to equity (FTE) is calculated as the unlevered free cash flow minus the debt service, then discounted at the unlevered cost of equity. Using the given inputs:
- Unlevered Free Cash Flow (FCF): $100,000,000
- Cost of Equity: 15%
- Debt: 8% interest-only 4-year loan

The interest expense on the loan is $37,120,000 ($1,540,000 * 8% * 4 years). Subtracting the interest from the FCF gives us $98,460,000. Discounting this FCF at 15% gives us $36,580,767.55 as the value of the equity claim.

Using the Flow to Equity Methodology,what Is the Value of the Equity