Covan, Inc. is expected to have the following free cash flow: Year 1 2 3 4 FCF 13 15 16 17 Grow by 4% per year a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. 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, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? The stock price should be $ 1. (Round to the nearest cent.) b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $1. (Round to the nearest cent.) c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? Your expected return from holding Covan stock until the beginning of year 2 is1%. (Round to one decimal place.)

Covan, Inc. is expected to have the following free cash flow: Year 1 2 3 4 FCF 13 15 16 17 Grow by 4% per year a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. 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, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? The stock price should be $ 1. (Round to the nearest cent.) b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $1. (Round to the nearest cent.) c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? Your expected return from holding Covan stock until the beginning of year 2 is1%. (Round to one decimal place.)

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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Ketchup Corporation is currently trading at $35 per share. There are 8 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 30% over 1 year the management were replaced. How much would you gain from acquiring 60% of the Ketchup's shares by getting a 1-year 10%-interest loan? Hint: you are not using your own money. The money for the investment comes from the loan Mutiple Choice $84.000.000 $50,400,000 $33,600,000 $0. $107,520.000
1. Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. If D0 = $3 and rs = 13%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent. = $ 2. Earley Corporation issued perpetual preferred stock with a 12% annual dividend. The stock currently yields 8%, and its par value is $100. Round your answers to the nearest cent. a.What is the stock's value? = $ b. Suppose interest rates rise and pull the preferred stock's yield up to 14%. What is its new market value? = $
A company had $15 of sales per share for the year that just ended. You expect the company to grow their sales at 7 percent for the next five years. After that, you expect the company to grow 5 percent in perpetuity. The company has a 15 percent ROE and you expect that to continue forever. The company's net margins are 6 percent and the cost of equity is 10 percent. Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent. $ 24.65
Sims Manufacturing is expected to generate $195 million in free cash flow next year, and FCF is expected to grow at a constant rate of 6% per year indefinitely. Sims has no debt or preferred stock, and its required rate of return is 12%. If Sims has 45 million shares of common stock outstanding, what is the stock's value per share? (Answer to the nearest cent. i.e. one thousand dollars would be entered 1000.00).
Treet Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microsoft to begin paying dividends, with the ﬁrst dividend of $6.00 coming 3 years from today. The dividend should grow rapidly—at a rate of 60 percent per year—during Years 4 and 5. After Year 4, the company should grow at a constant rate of 7 percent per year. If the required rate of return on the stock is 10 percent, what is the value of the stock today?
Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $10.80, but management expects to reduce the payout by 5.25 percent per year, indefinitely. If you require a return of 9 percent on this stock, what will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Scarab Technologies is expected to generate $175 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scarab has no debt or preferred stock, and its WACC is 10%. If Scarab has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. How much is each share of common stock is worth dollars, according to the corporate valuation model?
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 9% per year. If D0 = $5 and rs = 14%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.
Bloom Company Limited expects its EBIT to be $80,000 every year forever. The firm canborrow at 9 percent. The firm currently has no debt, and its cost of equity is 13 percent. Thetax rate is 35 percent. The firm will borrow $100,000 and use the proceeds to repurchase shares. You are required to answer the following:(a) What is the value of the unlevered firm? (b) What will be the value of firm after recapitalization? (c) What is the value of equity in the recapitalized firm? (d) What is the Weighted Cost of Capital of the levered firm?
Sunnyfax Publishing pays out all its earnings and has a share price of $37.00. In order to expand, Sunnyfax Publishing decides to cut its dividend from $3.00 to $2.00 per share and reinvest the retained funds. Once the funds are reinvested, they are expected to grow at a rate of 14%. If the reinvestment does not affect Sunnyfax's equity cost of capital, what is the expected share price as a consequence of this decision? O $45.87 $40.14 $68.81 $57.34 Suppose a ten-year, $1,000 bond with an 8.6% coupon rate and semiannual coupons is trading for $1,035.39. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? 8.08% O4.04% O 5.36% O 10.72%
Covan, Inc. is expected to have the following free cash flow: a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. 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 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $ (Round to the nearest cent.) A b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cont.) c. Assume you bought Covan stock at the beginning of…
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 3% per year. If D0 = $3 and rs = 13%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent. $ ?

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