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Aswath Damodaran1The Free Cashflow to Firm ModelAswath Damodaran Aswath Damodaran2DaimlerChrysler: Rationale for ModelnDaimlerChrysler is a mature firm in a mature industry. We willtherefore assume that the firm is in stable growth.nSince this is a relatively new organization, with two different cultureson the use of debt (Daimler has traditionally been more conservativeand bank-oriented in its use of debt than Chrysler), the debt ratio willprobably change over time. Hence, we will use the FCFF model. Aswath Damodaran3Daimler Chrysler: Inputs to the ModelnIn 1999, Daimler Chrysler had earnings before interest and taxes of9,324 million DM and had an effective tax rate of 46.94%.nBased upon this operating income and the book values of debt andequity as of 1998, DaimlerChrysler had an after-tax return on capitalof 7.15%.nThe market value of equity is 62.3 billion DM, while the estimatedmarket value of debt is 64.5 billionnThe bottom-up unlevered beta for automobile firms is 0.61, andDaiml...