Golden Eye Co., a hi-tech satellite company, has asked you to value the company for possible cross-listing in the U.S. The company has estimated revenues, earnings before interest and taxes, change in net working capital, and Net Capital spending (defined as Capital spending – depreciation) for the next three years (see Exhibit 1 below.) The free cash flow in year 4 is estimated to be $250 million and is expected to grow at 4% forever. The tax rate is 36%. The company’s unlevered cost of capital is 16.43%. Golden Eye Co. has just borrowed $1 billion of long-term debt at 9% interest rate. It will repay $200 million per year in the first three years, and then will maintain the debt at $400 million forever. What is the value of the firm?
Exhibit 1:
Year T=1 T=2 T=3
Revenues 6,619 7,417 8,564
EBIT 540 680 750
Net Capital spending 150 170 190
Change in NWC 70 75 80