Given are the following data for Outsource Company: PV (of FCFs for years 1-3)= $35 million; PV (horizon value)= $65 million. Suppose that the market value of the debt = $30 million. Calculate the total market value of equity of the firm.
A)$100 million
B)$70 million
C)$30 million
D)$35 million

Question

Quizplus · Accepted Answer

To calculate the total market value of equity, we need to subtract the market value of debt from the total firm value.

Total firm value = PV of FCFs + PV of horizon value + market value of debt 
Total firm value = $35 million + $65 million + $30 million = $130 million

Market value of equity = Total firm value - market value of debt 
Market value of equity = $130 million - $30 million = $ 100 million

Therefore, the total market value of equity is $70 million (Option B).

Given Are the Following Data for Outsource Company: PV (Of