The following information is extracted from the forecasted balance sheet and income statement of Good Ltd and Bad Ltd. As on 31 December 2020, market value of Good Ltd’s and Bad Ltd’s shares were $1.10 and $1.95 per share, respectively, with 1,000,000 shares outstanding in both the companies. REQUIRED (a) Calculate free cash flow for both the companies for the years 2021 to 2023. (b) Calculate the equity value per share for both the companies. (c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why
The following information is extracted from the forecasted balance sheet and income statement of Good Ltd and Bad Ltd. As on 31 December 2020, market value of Good Ltd’s and Bad Ltd’s shares were $1.10 and $1.95 per share, respectively, with 1,000,000 shares outstanding in both the companies. REQUIRED (a) Calculate free cash flow for both the companies for the years 2021 to 2023. (b) Calculate the equity value per share for both the companies. (c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why
Chapter12: Capital Structure
Section: Chapter Questions
Problem 1PROB
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Question
The following information is extracted from the
REQUIRED
(a) Calculate
(b) Calculate the equity value per share for both the companies.
(c) Assume your client holds both companies’ shares and wants to sell one of the companies’ shares. Based on your valuations in (b), which company’s shares would you recommend for this client to sell? Why?
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