29. Based on Exhibits 1 and 2 and the proposed two-stage FCFE model, the intrinsic value of Company B’s equity is closest to:
- $70,602 million.
- $73,588 million.
- $79,596 million.
Why are we not using the Traget debt ratio mentioned in Exhibit 2 while calculating FCFE?
Hey Manaswi, they haven’t use the target cap structure because co’s are req to maintain it over the long term. In short term they can deviate from the target & every co., does it because of favourable conditions in one of the market.
Don’t stress yourself much. Thank you!
But how will I know if its for short term? Its not mentioned anywhere. How am I supposed to deal with such questions in exam when the target ratio is mentioned?
Also could you guide me about when particularly to use and not use target ratio in calculation of FCFE?
When you use FCFE it about Equity so ke in the denominator will not be adj for the weights.
Agar FCFF use kr rhe hote toh we would have done the adj.
Uppar wala explanation was not completely correct, please avoid that.
But we actually use target ratio to adjust the Net Borrowing in Fcfe.
I am still doubtful!