INPUTS (In millions)Free cash flowMarketable SecuritiesNotes payable (short-term debt)Long-term bondsPreferred stockWACCNumber of shares of stockFree cash flowLong-term constant growth in FCFHorizon valuePV of horizon value3 Value of operations4 Plus value of narketable securities5Total value of companyCurrent0a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast periodimmediately after the Year-4 free cash flow). Assume FCFs grow constantly after year 3.3 PV of FCF9 Value of operations (PV of FCF + - HV)01 c. Calculate the estimated Year-0 price per share of common equity.26 Less value of debt7 Less value of preferred stock8$40$100$300$509.00%40Estimated value of common equity9 Divided by number of shares0Price per share1Current01-$20.0Year1-$20.0Projected2$20.0b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated5 Year-0 value of operations.Projected23$80.0$20.03$80.04$84.04$84.0

Horizon value is the value of constant growth of the free cash flow and is value of ongoing…

Free cash flow Marketable Securities Notes payable (short-term debt) Long-term bonds Preferred stock WACC Number of shares of stock Current 0 Free cash flow Long-term constant growth in FCF Horizon value $40 $100 $300 $50 9.00% 40 1 $20.0 Current 0 Year 1 -$20.0 Projected 2 a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year 4 free cash flow). Assume FCFs grow constantly after year 3. $20.0 Projected 2 3 $80.0 $20.0 3 $80.0 4 $84.0 4 $84.0

Free cash flow Marketable Securities Notes payable (short-term debt) Long-term bonds Preferred stock WACC Number of shares of stock Current 0 Free cash flow Long-term constant growth in FCF Horizon value $40 $100 $300 $50 9.00% 40 1 $20.0 Current 0 Year 1 -$20.0 Projected 2 a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year 4 free cash flow). Assume FCFs grow constantly after year 3. $20.0 Projected 2 3 $80.0 $20.0 3 $80.0 4 $84.0 4 $84.0

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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5. A securities firm has provided the balance sheet below. Assets ($ millions) $ 34 Liabilities and Equity ($ millions) Short-term funding Cash $ 27 Debt securities 175 Bonds 300 Equity securities 400 Debentures 197 Other assets 12 Equity 97 Total Assets $ 621 Total Liabilities and Equity $ 621 The debt securities have an annual 7.25% coupon rate, 22 years to maturity and a yield to maturity of 6.75%. The market value of the equity securities and the other assets is equal to their book value. The firm has 500,000 shares outstanding and the price per share is $35.67. a. Calculate the firm's aggregate indebtedness to net capital ratio. b. Calculate the firm's highly liquid assets to total liabilities ratio. Based on the firm's ratios from a and b, is it in compliance with Rule 15C 3-1? Why or why not? C.
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