A company has the following free cash flow forecasts (in millions):12tFCFFWählen Sie eine Antwort:A. 1011.07OB. 740.70OC. 669.97OD. 568.6330Die richtige Antwort ist: 740.7035340The company's cost of equity was calculated at 10.00% and its cost of debt at 5.00%. The company's debt-to-equity ratio is 60.00%. The applicable corporate tax rate is 30.00%. After the fourth year, the free cash flow to the firm is assumed togrow at 2.00% per year in perpetuity. What is the present value of the firm closest to?445

Calculation of present value of firm is based on the concept of time value of money. The value of a…

Answered: A company has the following free cash…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company has a required return of 12%, a profit margin of 4%, a D/E ratio of 0.5 and total asset turnover of 2. Annual dividends last year were $2.00. A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio. B) If the company would have changed its dividend payout ratio to 60%, what would happen to the price and forward P/E ratio? C) What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)
Reingaart Systems is expected to pay a $3.4 dividend at year end (D1 = $3.4), the dividend is expected to grow at a constant rate of 5.8% a year, and the common stock currently sells for $65 a share. The before-tax cost of debt is 7.8%, and the tax rate is 29%. The target capital structure consists of 56% debt and 44% common equity. What is the company's WACC if all equity is from retained earnings? O 8.55% O 7.65% O 7.95% O 7.35% 8.25%
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $40.00 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company’s WACC if all the equity used is from retained earnings? Do not round your intermediate calculations. Group of answer choices 8.49% 6.96% 6.79% 6.45% 9.42%
Your firm has earnings of $3.75/share. Over 5-years earnings will increase to $9.00. What is the earnings growth rate? (Round to 1 10 the nearest percent.) A. 18.5% B. 19.1% C . 21.3% D. 15.7% For two years (24 months) you deposit $500 at the beginning of each month. After 2 years you $13,000 in your account. If the bank compounds interest monthly, what annual interest rate will you have earned (multiply the monthly rate by 12 to get the annual rate)? A. 8.00% B. 8.82% C . 8.40% D. 7.62%
The Montana Hills Co. has expected earnings before interest and taxes of $17,100 forever, an unlevered cost of capital of 12.4 percent, and debt with both a book and face value of $25,000. The debt has an annual 6.2 percent coupon. If the tax rate is 21 percent, what is the value of the firm? $91,016 $137,903 $114,194 $106,667 $146,403
A company is financed with equity of $4.5 million and a bank loan of $2.5 million with an interest rate of 8.6% per annum. The EBIT is $1.12 million. The applicable tax rate is 19%. Use the above information to calculate the following: a) change in the return on equity and the degree of financial leverage given a 15% increase in EBIT next year, b) change in the return on equity and the degree of financial leverage given a 5% decrease in EBIT in the following year (the year following the year in which EBIT grew by 15%).
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $87.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 25%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Do not round your intermediate calculations.
As the chief financial officer of Adirondack Designs, you have the following information: Next year’s expected net income after tax but before new financing $ 50 million Sinking-fund payments due next year on the existing debt $ 25 million Interest due next year on the existing debt $ 20 million Common stock price, per share $ 33.0 Common shares outstanding 30 million Company tax rate 30% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $60 million of new debt at an interest rate of 4 percent. Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.5 million. Calculate next year’s earnings per share assuming Adirondack raises the $60 million of new debt. Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.5 million new shares at $23 a share instead of raising new debt. Note: Do not round intermediate…
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American Inc. projects the following data for the coming year. If the firm follows the residual dividend policy and maintains its target capital structure, what will its payout ratio be? Briefly discuss. EBIT $2,000,000 Capital budget $850,000 Interest rate 10%% Debt 40% 60% Debt outstanding $5,000,000 $5,000,000 % Equity Tax rate Shares outstanding 40%
Assume that the current stock price of a company is $40 per share. The company declares a cash dividend of $5 for the next year which is expected to grow by 2% per year forever. If the company is 55% debt financed with a pre-tax cost of debt of 12%, its weighted average cost of capital (WACC) for a 30% tax rate is closest to:
Sorensen Systems Inc. is expected to pay a $2.00 dividend at year end (D1 = $2.00), the dividend is expected to grow at a constant rate of 5.0% a year, and the common stock currently sells for $50.00 a share. The before-tax cost of debt is 6%, and the tax rate is 41%. The target capital structure consists of 40% debt and 60% common equity. What is the company’s WACC if all the equity used is from retained earnings?

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