Falcon Dynamics Inc. is a growing firm that is expected to generate $12 million in cash next year. The firm's cash flow is expected to grow at a rate of 18% per year. The firm's cost of capital is 22%. A) What is the market value of this firm? B) What is the firm's P/E ratio if it has no debt?
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- Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If the firm is financed by common equity and debt, what is the expected value of common equity next year? Cash flow in the next year Probability Amount Economy Boom 0.3 $110 million Normal 0.4 $101 million Recession 0.3 $61 million $26.8 million $24.7 million $0 -$18.3 millionHappy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If you invest in the corporate debt of Happy Time Inc. today, what is your expected percentage return on this investment? Cash flow in the next year Economy Probability Amount Boom 0.3 Normal 0.4 Recession 0.3 O 36.87% O -26.37% 64.8% O-16.63% $110 million $101 million $61 millionYou’ve collected the following information about Odyssey, Inc.:Sales =$165,000Net income = $14,800Dividends = $9,300Total debt = $68,000Total equity = $51,000What is the sustainable growth rate for the company? If it does grow at this rate, how much new borrowing will take place in the coming year, assuming a constant debt –equity ratio? What growth rate could be supported with no outside financing at all?
- Your company doesn't face any taxes and has $768 million in assets, currently financed entirely with equity. Equity is worth $51.80 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Recession 0.10 $118 million Average Boom 0.75 0.15 $193 million $253 million The firm is considering switching to a 15 percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structureSuppose a firm has a EBIT of $450, Depreciation of $65, taxes of $50, change in NWC of $35, and net capital expenditures of $75. Its FCF are expected to grow constantly indefinitely. The firm has a retention rate of 60%, an ROE of 6.667%, and a WACC of 15%. What is the value of the firm? Assuming the firm's market value of debt is $1,350 and the firm has 98 shares outstanding, what is should the firm's stock price be? Should you buy the stock if it currently sells for $15 per stock?Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $204,000 per year. The cost of equity is 14.5 percent and the tax rate is 39 percent. The firm can borrow perpetual debt at 5.6 percent. Currently, the firm is considering converting to a debt–equity ratio of 1.14. What is the firm's levered value?
- Rolex, Inc. has equity with a market value of $20 million and debt with a market value of $20 million. Assume the firm has no default risk and can borrow at the risk-free interest rate. The risk-free interest rate is 5 percent per year, and the expected return on the market portfolio is 11 percent. The beta of the company's equity is 1.2. The tax rate is 20%. What is the cost of capital for an otherwise identical all-equity firm? O 7.77% O 9.00% O 10.14% O 8.27%Plank’s Plants had net income of $3,000 on sales of $40,000 last year. The firm paid a dividend of $1,500. Total assets were $200,000, of which $140,000 was financed by debt. What is the firm’s sustainable growth rate? If the firm grows at its sustainable growth rate, how much debt will be issued next year? What would be the maximum possible growth rate if the firm did not issue any debt next year?XYZ Corp. is anticipating a sustained growth rate of 15% per year. Is it possible for them to achieve this growth rate given the following numbers. Debtequity ratio of 0.40 times Profit margin is 5.3 percent Capital Intensity Ratio is 0,75 times to answer: determine what the dividend payout ratio must be. How do you interpret the result?
- FinCorp’s free cash flow to the firm is expected to be $50 million. The firm’s interest expense is $12 million. Assume the tax rate is 35% and the net debt of the firm remains the same. What is the market value of equity if the FCFE is projected to grow at 2% indefinitely and the cost of equity is 12.5%? Enter your answer in millions, rounded to one decimal place (e.g., 2.1 for $2.1 million).Majong Inc. forecasts that it will have the free cash flows shown below. The free cash flows are expected to grow by 5% per year after year 3. Year 1 2 3 CF (S million) - 20 48 54 The weighted average cost of capital is 13%. The firm has $55 million of debt and 10 million shares outstanding. What is the firm value today (in $ million)? What is a good estimate of Majong's value per share?Your company doesn't face any taxes and has $755 million in assets, currently financed entirely with equity. Equity is worth $50.50 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .20 .60 .20 Expect EBIT in State $105 million $180 million $240 million The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
