At this point (at the end of 2013), a company's weighted average capital cost (WACC) is 12%, and its corporate tax rate is 25%. The entity's capital flows from 2014 to 2016 are: 1) Obtain the entity's surplus cash flows (FCF) from 2014 to 2016 (Tip: Note that increases in net fixed assets and capital expenditures are not the same concept). 2) After 2016, the FCF is expected to increase by 10% per year for good in 2015. Obtain corporate value after 2016 at the end of 2015. 3) Assuming Question 2) what is the company's equity capital value when the company's debt value is 1,500 at the end of 2013? If the total number of shares issued by the company is 100, what is the intrinsic value per share? 2014 2015 2016 sales 200 250 320 cashable operating expenses 80 85 90 depreciation cost 20 25 30 increase of net working capital 10 15 20 increase of net fixed asset 40 50 60
At this point (at the end of 2013), a company's weighted average capital cost (WACC) is 12%, and its corporate tax rate is 25%. The entity's capital flows from 2014 to 2016 are: 1) Obtain the entity's surplus cash flows (FCF) from 2014 to 2016 (Tip: Note that increases in net fixed assets and capital expenditures are not the same concept). 2) After 2016, the FCF is expected to increase by 10% per year for good in 2015. Obtain corporate value after 2016 at the end of 2015. 3) Assuming Question 2) what is the company's equity capital value when the company's debt value is 1,500 at the end of 2013? If the total number of shares issued by the company is 100, what is the intrinsic value per share? 2014 2015 2016 sales 200 250 320 cashable operating expenses 80 85 90 depreciation cost 20 25 30 increase of net working capital 10 15 20 increase of net fixed asset 40 50 60
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
At this point (at the end of 2013), a company's weighted average capital cost (WACC) is 12%, and its corporate tax rate is 25%. The entity's capital flows from 2014 to 2016 are:
1) Obtain the entity's surplus
2) After 2016, the FCF is expected to increase by 10% per year for good in 2015. Obtain corporate value after 2016 at the end of 2015.
3) Assuming Question 2) what is the company's equity capital value when the company's debt value is 1,500 at the end of 2013? If the total number of shares issued by the company is 100, what is the intrinsic value per share?
| 2014 | 2015 | 2016 | |
| sales | 200 | 250 | 320 |
| cashable operating expenses | 80 | 85 | 90 |
| 20 | 25 | 30 | |
| increase of net |
10 | 15 | 20 |
| increase of net fixed asset | 40 | 50 |
60 |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 5 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education