a) Compute Magna Corp's Free Cash Flow assuming the following: $400 million Operating income: Depreciation & amortization: Interest expense: Capital expenditures: amortization $30 million $40 million 120% of depreciation & Income tax rate: Dividends: Increase in accounts receivable: Decrease in inventory: Decrease in accounts payable: 35% $20 million $10 million $5 million $15 million b) Using a 2% perpetuity growth model and a WACC of 10%, what is the expected value of Magna Corp? c) Using the Dividend Discount Model and the same assumptions as in (b), propose a value for Magna Cогp.
a) Compute Magna Corp's Free Cash Flow assuming the following: $400 million Operating income: Depreciation & amortization: Interest expense: Capital expenditures: amortization $30 million $40 million 120% of depreciation & Income tax rate: Dividends: Increase in accounts receivable: Decrease in inventory: Decrease in accounts payable: 35% $20 million $10 million $5 million $15 million b) Using a 2% perpetuity growth model and a WACC of 10%, what is the expected value of Magna Corp? c) Using the Dividend Discount Model and the same assumptions as in (b), propose a value for Magna Cогp.
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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Transcribed Image Text:a) Compute Magna Corp's Free Cash Flow assuming the following:
$400 million
Operating income:
Depreciation & amortization:
Interest expense:
Capital expenditures:
$30 million
$40 million
120% of depreciation &
amortization
Income tax rate:
35%
Dividends:
Increase in accounts receivable:
Decrease in inventory:
Decrease in accounts payable:
$20 million
$10 million
$5 million
$15 million
b) Using a 2% perpetuity growth model and a WACC of 10%, what is the
expected value of Magna
Corp?
Using the Dividend Discount Model and the same assumptions as in (b),
c)
propose a value for Magna
Corp.
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