Consider the case of Morose Otter Hydraulic Manufacturers Inc.:Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at arate of 18% over the following two years (FCF2 and FCF3). After the third year, however, the company's FCFS are expected to grow at a constant rateof 8% per year, which will last forever (FCF4 - ). If Morose Otter's weighted average cost of capital (WACC) is 16%, complete the following table andcompute the current value of Morose Otter's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not haveany nonoperating assets in its balance sheet and that all FCFS occur at the end of each year.YearCFPV(FCF,)FCF1$181,034 V$184,156 ▼$210,000FCF2$247,800$292,404 V$315,796 ▼$3,157,960 vFCF3$187,331FCF4Horizon Value4- 00$2,180,141 ▼$3,081,485 ▼Vop

MOROS OTTER HYDRAULIC MANUFACTURERS INC C D E F Year Cash flow PVIF Present value 6…

Answered: Consider the case of Morose Otter…

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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The manager of a production system expects to spend S100,000 the first year with amounts increasing by $10,000 each year. Income is expected to be $400,000 the first year, decreasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over an 8 year period at an interest rate of 12% per year. b) Detemine the present worth of the company's net cash flow (present worth = present income present expenditure). Please write fomula and show your solution step by step. Use compound interest tables.
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