Spring 2026 Name:
Final: Equity Valuation
Answer all questions and show necessary work. Please be brief. This is an open-book,
open-notes exam.
1. You have been asked to review the valuation of Vulcan Enterprises. In arriving at a
value of $1.5 billion for the equity, the analyst has discounted the expected free cash
flows to equity of $90 million next year, expected to grow 3% a year, at the cost of
capital for the firm (instead of the cost of equity). If the after-tax cost of debt is 4%
and the debt to capital ratio is 20%, estimate the correct value of equity. (3 points)
1
, Spring 2026 Name:
2. You have been given the expected free cash flows (in $ millions) to Narnia Inc for
the next three years and have been asked to complete the valuation.
Most recent year 1 2 3
Operating income after taxes $150.00 $165.00 $181.50 $199.65
+ Depreciation $40.00 $44.00 $48.40 $53.24
- Cap Ex $100.00 $110.00 $121.00 $133.10
- Change in WC $40.00 $44.00 $48.40 $53.24
FCFF $50.00 $55.00 $60.50 $66.55
PV @ cost of capital of 12% $49.11 $48.23 $47.37
Assuming that the firm is expected to maintain its current return on capital in
perpetuity, and that the growth rate after year 3 will be 3% a year forever, with a cost
of capital of 9%, estimate the value for the firm today. (3 points)
2
Final: Equity Valuation
Answer all questions and show necessary work. Please be brief. This is an open-book,
open-notes exam.
1. You have been asked to review the valuation of Vulcan Enterprises. In arriving at a
value of $1.5 billion for the equity, the analyst has discounted the expected free cash
flows to equity of $90 million next year, expected to grow 3% a year, at the cost of
capital for the firm (instead of the cost of equity). If the after-tax cost of debt is 4%
and the debt to capital ratio is 20%, estimate the correct value of equity. (3 points)
1
, Spring 2026 Name:
2. You have been given the expected free cash flows (in $ millions) to Narnia Inc for
the next three years and have been asked to complete the valuation.
Most recent year 1 2 3
Operating income after taxes $150.00 $165.00 $181.50 $199.65
+ Depreciation $40.00 $44.00 $48.40 $53.24
- Cap Ex $100.00 $110.00 $121.00 $133.10
- Change in WC $40.00 $44.00 $48.40 $53.24
FCFF $50.00 $55.00 $60.50 $66.55
PV @ cost of capital of 12% $49.11 $48.23 $47.37
Assuming that the firm is expected to maintain its current return on capital in
perpetuity, and that the growth rate after year 3 will be 3% a year forever, with a cost
of capital of 9%, estimate the value for the firm today. (3 points)
2
