Sum ofMBrandtly Industries invests a largemoney in R&D; as a result, it retains andreinvests all of its earnings. In other words,Brandtly does not pay any dividends, andit has no plans to pay dividends in the nearfuture. A major pension fund is interested inPurchasing Brandtly's stock. The pensionfind manager has estimated Brandtly's freecash flows for the next 4 years as follows i$3 million, $6 million, $11 milion, and $15million. After the fourth year, free cash flowis projected to grow at a constant 8% Brandtly'sWACC is 9%, the market value of its debt andpreferred stuck totals $62 million, the firmhas $62 million, the firm has $12 million innon operating assets, and it has 19 million shares ofCommon stock outstanding.a) What is the present value of the free cash flows projectedduring the next 4 years? Round your answer to thenearest dollar. For ex: 13 million should be entered as 13,000,000.b) What is the firm's horizon, or continuing, value?() What is the market value of the company's operations?• What is the firm's total market market value today?1) What is an estimate of Brandtly's phice per share?JO

It is helpful in determining what the future cash flow is worth at present today, which would be…

Answered: Brandtly Industries invests a large sum…

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

See similar textbooks

Similar questions

Suppose you have just become the president of J&J and the first decision you face is whether Co go ahead with a plan to renovate the company's Al systems. The plan will cost the company $60 million, and it is expected to save $15 million per year after taxes over the next five years. The firm sources of funds and corresponding required rates of return are as follow: $5 million common stock at 16%, $800,000 preferred stock at 12%, $6 million debt at 7%. All amounts are listed at market values and the firm's tax rate is 30%. You are the financial manager and supposed to calculate the NPV. What's the NPV? Do you recommend taking the project? ง = O NPV $5.167 Millions; I'll recommend the owners to take the project. O NPV=-$1.720 Millions; I'll tell the owners not to take the project. NPV = $4.562 Millions; I'll tell the owners not to take the project. O NPV=-$8.098 Millions; I'll tell the owners not to take the project.
Cheeko Limited is a company in Pakistan that focuses on producing pet products, it currently has 10 million shares outstanding. The company is in its nascent stage and all earnings are currently being reinvested. In other words, the company does not pay any dividends to its shareholders and does not plan to do so in the near future. A major mututal fund is considering purchasing cheeko ltd's stock for investment. The fund manager has estimated that the company's free cash flow for the next four years is likely to be as follows: PKR 10 million, 3 million, 15 million and 6 million. After the fourth year free cash flow is projected to grow at a constant 7%. The company's WACC is 12%, its debt and preferred stock total 60 million and solve all the parts of this question. a) What is the present value of the free cash flows projected during the next four years? (show workings) b) What is the firm's terminal value? (show workings) c) What is the firm's total value today? (show workings)
It's your first day on the job as a stock analyst and you are trying to assess the value of Beacon Industries. Your predecessor built a financial model that estimates cash flows for Beacon, but it only extends for 6 years. You know that in order to get the total value of the company, you need to add a so-called terminal value for all the cash flows in years 7 and beyond. This perpetuity will be based on the Year 6 cash flow, which is $19 million. You know that the discount rate that investors are using to assess Beacon is 9%, and you expect the cash flows to grow in perpetuity at 1.5% annually. If the PV of the 6-year cash flow model is $80 million, what is the total value of Beacon?
John Tye has just been hired as the new corporate finance analyst at I-Ell Enterprises and has received his first assignment. John is to take the $25 million in cash received from a recent divestiture and use part of these proceeds to retire an outstanding $10 million bond issue and the remainder to repurchase common stock. However, the bond issue cannot be retired for another two years. If John can place the funds necessary to retire this $10 million debt into an account earning 6 percent compounded monthly,how much of the $25 million remains to repurchase stock?
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $2 million, $5 million, $12 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 3%. Brandtly's WACC is 11%, the market value of its debt and preferred stock totals $52 million; the firm has $14 million in non-operating assets; and it has 8 million shares of common stock outstanding. What is the present value of the free cash flows projected during the next 4 years? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.$ What…
CoinSoft was a company that developed software to manage portfolios of cryptocurrencies. In 2021, the company's revenue was $14 million. In 2022, customers paid for $4 million in upgrades. In the same year, there were $0.5 million in downgrades and $0.8 million in reduced revenue from customers who went out of business themselves or switched to a competitor. Calculate the net dollar retention in percentage form? The correct answer is 119.3, please explain fully
Hanuman Corp is a medium-sized corporation that has long dominated their market. With a strong cash-flow position, they have decided to invest excess cash strategically. In particular, Hanuman made periodic investments with their main supplier, Shiva. Although Hanuman currently owns 18% of the common shares of Shiva, it does have significant influence over the operations of this investee company. Hanuman Corp has a December 31st year end. Before 2020, Hanuman had invested $22.4 million in Shiva and, at December 31, 2019, the investment had a fair value of $21.3 million. Hanuman did not sell or purchase any Shiva shares this year. Hanuman declared and paid a dividend totalling $2.2 million on all its common shares and reported 2020 net income of $13.6 million. Hanuman’s 18% ownership of Shiva has a December 31, 2020, fair value of $21,405,000. Required: Prepare the appropriate entries for the Shiva investment, for 2020
2. National Business Machine Co. (NBM) has $4.9 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in either Treasury bills yielding 3% or 5% preferred stock. IRS regulations allow the company to exclude from taxable income 70% of the dividends received from investing in another company's stock. Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield or in preferred stock. The corporate tax rate is 21%. Assume the investor has a 31% personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 15% on common stock dividends. Should the cash be paid today or in three years? Which of…
Overnight Publishing Company (OPC) has $2.7 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm's debt is held by one institution that is willing to sell it back to OPC for $2.7 million. The institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, it will remain unlevered forever. If OPC does not retire the debt, the company will use the $2.7 million in cash to buy back some of its stock on the open market. Repurchasing stock also has no transaction costs. The company will generate $1,320,000 of annual earnings before interest and taxes in perpetuity regardless of its capital structure. The firm immediately pays out all earnings as dividends at the end of each year. OPC is subject to a corporate tax rate of 22 percent and the required rate of return on the firm's unlevered equity is 13 percent. The personal tax rate on interest income is 20 percent and there are no…
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $17.00, all of which was reinvested in the company. The firm's expected ROE for the next five years is 15% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm's ROE on new investments is expected to fall to 10%, and the company is expected to start paying out 20% of its earnings in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 26% per year. Required: a. What is your estimate of DEQS's intrinsic value per share? b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? c. What do you expect to happen to price in the following year? d. What is your estimate of DEQS's intrinsic value per share if you expected DEQS to pay out only 15% of…
Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $63 million at the end of next year. a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.8%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS