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19 February, 12:36

Tropetech Inc. has an expected net operating profit after taxes, EBIT (1 - T), of $2,400 million in the coming year. In addition, the firm is expected to have net capital expenditures of $360 million, and net operating working capital (NOWC) is expected to increase by $45 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year? $2,715 million $43,481 million $2,085 million $1,995 million Tropetech Inc.'s FCFs are expected to grow at a constant rate of 3.90% per year in the future. The market value of Tropetech Inc.'s outstanding debt is $11,510 million, and its preferred stocks' value is $6,394 million. Tropetech Inc. has 675 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 11.70%.

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  1. 19 February, 16:33
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    The computation is shown below:

    The free cash flow is

    = Expected net operating profit after taxes - net capital expenditure - net operating working capital

    = $2,400 million - $360 million - $45 million

    = $1,995 million

    Now the total firm value is

    = Free cash flow : (cost of capital - growth rate)

    = $1,995 million : (11.70% - 3.90%)

    = $1,995 million : 7.8%

    = $25,576.92 million

    Now the intrinsic value of equity is

    = Total firm value - outstanding debt - preferred stock

    = $25,576.92 million - $11,510 million - $6,394 million

    = $7,672.92 million

    And, the intrinsic value per share

    = $7,672.92 million : 675 million shares

    = $11.37 per share
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