Zeta Technologies has the following projections. It has no non-operating assets. Calculate Zeta's intrinsic value of equity using the FCFE model.

$\begin{array}{l}
\begin{array} { l }
\ \
\text { FCFE }\
\text { Total debt }\
\text {Interest rate on debt }\
\text {Tax rate}\
\text { Long-term growth rate}\
\text { Required return on equity }\
\end{array}
\begin{array} { l }
\text { Cunent }\
\text { Year } & \text { Year 1 } & \text { Year 1 } & \text { Year 3 } \
NA& 1,000 & 1,200 & 1,248 \
3,000 & 3,900 & 4,290 & 4,462 \
6 \% & 6 \% & 6 \% & 6 \% \
25 \% & 25 \% & 25 \% & 25 \%\
4\%\
9\%
\end{array}
\end{array}$

Question

Zeta Technologies has the following projections. It has no non-operating assets. Calculate Zeta's intrinsic value of equity using the FCFE model.

$\begin{array}{l}
\begin{array} { l } 
\ \
\text { FCFE }\
\text { Total debt }\
\text {Interest rate on debt }\
\text {Tax rate}\
\text { Long-term  growth  rate}\
\text { Required return on equity }\
\end{array}
\begin{array} { l } 
\text { Cunent }\
\text { Year } & \text { Year 1 } & \text { Year 1 } & \text { Year 3 } \
NA& 1,000 & 1,200 & 1,248 \
3,000 & 3,900 & 4,290 & 4,462 \
6 \% & 6 \% & 6 \% & 6 \% \
25 \% & 25 \% & 25 \% & 25 \%\
4\%\
9\%
\end{array}
\end{array}$

Quizplus · Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
\ \
 \mathrm{FCF}\
\text { After-tax interest }\
\text { expense}\
\text { Increase in debt}\
\text { FCFE}\
\text { HVFCFE}\
\end{array}
\begin{array} { l } 
\text { Year } 1 & \text { Year l } & \text { Year } 3 \
1,000 & 1,200 & 1,248 \
\
175.5 & 193.05 & 200.79 \
900 & 390 & 172 \
1,725 & 1,397 & 1,219 \
& & 25,360
\end{array}
\begin{array} { l } 
\
\ \
=\text { Debt } x \text { interest rate } \mathrm{x}(1-\mathrm{T}) \
=\text { Change in debt } \
=\mathrm{FCF}-\text { a-t interest }+\text { increase in debi } \
=\mathrm{FCFE} 3 \mathrm{x}(1+\mathrm{g}) /(1-\mathrm{g})
\end{array}
\end{array}$
$ \quad $$\text { VFCFE }$  $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \$ 23,282 \quad =\mathrm{PV} $ of $ \mathrm{FCFE} $ and $ \mathrm{HVFCFE} $ at required return on equity

Zeta Technologies Has the Following Projections A) $21,165 B) $23,282 C) $25,610 D) $28,171 E) $30,988

Zeta Technologies Has the Following Projections A) $21,165
B) $23,282
C) $25,610
D) $28,171
E) $30,988