Use the below information to value a levered company with annual perpetual cash flows from assets that grow. The next cash flow will be generated in one year from now. Note that ‘k’ means kilo or 1,000. So the $30k is $30,000.
| Data on a Levered Firm with Perpetual Cash Flows | ||
| Item abbreviation | Value | Item full name |
| OFCF | $30k | Operating free cash flow |
| g | 1.5% pa | Growth rate of OFCF |
| rD | 4% pa | Cost of debt |
| rEL | 16.3% pa | Cost of levered equity |
| D/VL | 80% pa | Debt to assets ratio, where the asset value includes tax shields |
| tc | 30% | Corporate tax rate |
| nshares | 100k | Number of shares |
Which of the following statements is NOT correct?