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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
8.  Union Pacific Railroad reported net income of $770 million after interest expenses of
$320 million in a recent financial year. (The corporate tax rate was 36 percent.) It
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reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8 percent), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Union Pacific paid 40 percent of its earnings as dividends and working capital requirements are negligible. (The Treasury bond rate is 7 percent.)
a.   Estimate the FCFF for the most recent financial year.
b.   Estimate the value of the firm now.
c.   Estimate the value of equity and the value per share now.
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