OHM Corporation, an environmental service provider, had revenues of $209 million in 1992 and reported losses of $3.1 million. It had earnings before interest and taxes of $12.5 million in 1992, and had debt outstanding of $109 million (in market value terms). There are 15.9 million shares outstanding, trading at $11 per share. The pre-tax interest rate on debt owed by the firm is 8.5%, and the stock has a beta of 1.15. The firm's EBIT is expected to increase 10% a year from 1993 to 1996, after which the growth rate is expected to drop to 4% in the long term. Capital expenditures will be offset by depreciation, and working capital needs are negligible. (The corporate tax rate is 40%, and the treasury bond rate is 7%.)
A. Estimate the cost of capital for OHM.
B. Estimate the value of the firm.
C. Estimate the value of equity (both total and on a per share basis).
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OHM Corporation, an environmental service provider, had revenues of $209 million in 1992 and reporte...
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