Covan, Inc. is expected to have the following free cash flow: a. Covan has 7 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? Covan reinvests all its FCF and has no plans to add debt or change its cash holdings. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 7 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? The current stock price should be $ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 2 3 4 FCF ($ million) 12 14 15 16 Grow by 3% per year Print Done - X

Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment.   After making the investment, Kohwe expects to earn free cash flows of $10 million each year.   Kohwe currently has 5 million shares outstanding, and has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe's future free cash flows is 8%, and the only capital market imperfections are corporate taxes and financial distress costs.   a. What is the NPV of Kohwe's investment?   b. What is Kohwe's share price today?   Suppose Kohwe borrows the $50 million instead. The finn will pay interest only on this loan each year, and maintain an outstanding balance of $40 million on the loan. Suppose that Kohwe's corporate tax rate is 35%, and expected free cash flows are still $9 million each year.   c. What is Kohwe's share price today if the investment is financed with debt?   Now suppose that with leverage, Kohwe's expected free cash flows wiH decline to $8 million per year due…

Calvert Corporation expects an EBIT of $25,500 every year forever. The company currently has no debt, and its cost of equity is 15.4 percent. The company can borrow at 10.2 percent and the corporate tax rate is 21 percent.   a. What is the current value of the company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-1. What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c-1. What will the value of the firm be if the company takes on debt equal to 50 percent of its levered value? (Do not round intermediate calculations and round your answers to 2 decimal places,…

Calvert Corporation expects an EBIT of $25,100 every year forever. The company currently has no debt, and its cost of equity is 15.2 percent. The company can borrow at 10 percent and the corporate tax rate is 24 percent. a.    What is the current value of the company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)b-1.    What will the value of the firm be if the company takes on debt equal to 60 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)b-2.    What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)c-1.    What will the value of the firm be if the company takes on debt equal to 60 percent of its levered value? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,…

Cede & Co. expects its EBIT to be $54,000 every year forever. The firm can borrow at 6 percent. The firm currently has no debt, its cost of equity is 10 percent, and the tax rate is 21 percent. Assume the firm borrows $151,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %

Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The firm currently has no debt, its cost of equity is 12 percent, and the tax rate is 23 percent. Assume the firm borrows $155,000 and uses the proceeds to repurchase shares.   a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The manager of a firm at t=0 has to decide whether to liquidate or to continue. If he decides to continue in t=1, the value of the firm assets will be Va= €140 million assuming business recovers. Nevertheless, the most likely scenario ((1-p) = 85%) is that the company sales will continue declining. Then, company assets will be valued only at Vẞ = €78 million. At what debt value, we see an inefficiency case because Managers' Aversion to Liquidation. a. $60 million O b. None * C. $100 million d. $80 million Your answer is incorrect. The correct answer is: $100 million

Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $50 per share, but the book value per share is $20. Net income for Johnson is currently $12 million. The new facility will cost $20 million, and it will increase net income by $800,000. Johnson raises stock at the current price to finance the facility. Assume a constant price–earnings ratio. Does stock price dilution occur? (A) stock price dilution occurs. (B) stock price dilution does not occur.

A company currently has EBIT of $25,000 and is all-equity financed. The company expect EBIT to stay at this level indefinitely. Now assume the firm issues $50,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm? Make a case for why X is the best option and explain what considered, what assumptions you made and why?

Suppose a company has the chance to make an investment that will result in a profit of 10 billion if it is successful but the company will be worthless and go bankrupt if the investment is unsuccessful. The firm has bonds that pay 8% annual interest rate and have a value of $1,000 per bond and stock that sells for $12 per share. If the new project is successful, the price of the stock will jump to $18, but the value of bonds will remain $1,000 per bond. The probability of successes is 40% and the probability of failure is 60%. What is the expected return on bond? -10% -100% -60% -20%