Any idea where they’re getting the NCC charge of 18 from?
Mark is Equity Research Analyst working with ABC limited. Henry, fund manager, at ABC limited is very positive about the prospectus of Pharmaceutical industry due to the recent boom in the industry. There have been many takeovers in the recent times in the industry and some other are expected in the future. Henry believes that the future of Zenith Corporation, a pharmaceutical firm, is very bright and therefore wants to value the firm. Zenith allocates the firm to Mark and asks him to do the further analysis . Mark, to value Zentih, starts gathering information about Zenith Corporation. Zenith Corporation has bonds, preferred stock and common stocks as the sources of financing on their Balance Sheet. The market value of each of these sources of financing and the Before-tax required rate of return are given in the exhibit below: Zenith corp. ltd. Capital Structure Source Market Value ($ in mn.) Required Return Bonds 600 8% Preferred Stock 200 7% Common Stock 800 12% Some other useful numbers from financial statements are given below: Net Income available to common 80 Interest Expense 48 Preferred Dividend 14 Investments in Fixed Capital 62 Investments in Working Capital 24 Depreciation 40 Net Borrowing 25 Tax Rate 30% Stable growth rate of FCFF 4% Stable growth rate of FCFE 5% 13. The FCFF of Zenith corp. is closest to: A. 59 B. 64 
C. 86 
Ans. C “Free Cash Flow Valuation” Study session 12-34 FCFF= NI + NCC + Int (1-TR) - FCI - WCI 80+18+40+48*(1-.3)-62-24=85.6