Gambit Enterprises is being evaluated as an acquisition target. For the upcoming year an analyst has estimated the following values: net income $300m, net interest after tax = = $100m, change in deferred taxes = +$25m, depreciation = $200m, change in net working capital = +$30m, CAPEX = $250m. Calculate the firm's estimated free cash flow.
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- Dyrdek Enterprises has equity with a market value of $11.8 million and the market value of debt is $4.05million. The company is evaluating a new project thathas more risk than the firm. As a result, the companywill apply a risk adjustment factor of 2.1 percent. Thenew project will cost $2.40 million today and provideannual cash flows of $626, 000 for the next 6 years. Thecompany's cost of equity is 11.47 percent and thepretax cost of debt is 4.98 percent. The tax rate is 21percent. What is the project's NPV?A start-up company Amazonian.com is considering expanding into new product markets. The expansion will require an initial investment of $160 million and is expected to generate perpetual EBIT of $40 million per year. After the initial investment, future capital expenditures are expected to equal depreciation, and no further additions to net working capital is anticipated. Amazonian.com’s existing capital structure is composed of equity with a market value of $500 million and debt with a market value of $300 million, and has 10 million shares outstanding. The unlevered cost of capital for Amazonian.com is 10%, and Amazonian.com’s debt is risk free with an interest of 4%. The expansion into the new product market will have the same business risk as Amazonian.com’s existing assets. The corporate tax rate is 35%, there are no personal taxes or costs of financial distress. a) Amazonian.com initially proposes to fund the expansion by issuing equity. If investors were not expecting this…GTO Inc. is considering an investment costing $214,170 that results in net cash flows of $30,000 annually for 11 years. (a) What is the internal rate of return of this investment? (b) The hurdle rate is 9.5%. Should the company invest in this project on the basis of internal rate of return?
- John decided to purchase a firm which is expected to generate net cash flows of $5,000 one year from now, $2,000 at the end of each of the next five years and a $10,000 in seven years from now. Investments of similar characteristics and risk in the market have a discount rate of 10%. (a) Determine the value of the firm. (b) What is the incremental value (NPV) of this acquisition if the initial investment made by John is $12,000? (15) (10) Note: Show your answers in tables and all calculations properly presented.Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000, $9,000, and $15,000 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a 14 percent rate of return is applicable to this potential purchase. the value of the cash flow stream in(1). year 0 (today) ? year 2?Berkshire Hathaway is considering the purchase of A.B.Bearcat. The company, A.B.Bearcat, is expected to generate cash flows of $9,092, $7,515, $6,106, and $9,055 over the next four years, respectively. After that time, it is believed that the company will be worthless. Berkshire Hathaway has determined that a rate of return of 11.51 percent is applicable to this potential purchase. What is the most that Berkshire Hathaway would willing to pay today to buy A.B.Bearcat? $31,768.00 $24,457.32 $27,272.35 $18,600.88 $78,992.18
- FrontLier Company is planning to acquire Stint Corp. The additional pre-tax income from the acquisition will be $150,000 in the first year, but it will increase by 5% in future years. Because of diversification, the beta of FronLier will decrease from 1.20 to 0.9. Currently the return on the market is 11% and the riskless rate is 6%. What is the maximum price that FrontLier should pay for Stint Corp? The tax rate of FrontLier is 30%. O 1,870,000 1,872,500 1,875,000 O 1,909,091You are currently working for MAC Corp. and you have identified the following information for the first year of the roll-out of its new proposed project: Projected Revenue $ 20 Million Operating costs (does not include depreciation) $10 Million Depreciation $5 Million Interest Expense $4 Million The firm faces a 30% tax rate. Assume that there are no changes in net operating working capital. What is the project’s operating cash flow for the first year ( at end of Year 1 ==> t = 1 ) ? Please show your work.The annual cash flows of a project are shown in the table below: Year t = 0 t = 1 t = 2 Cash Flow -$951 M $2,710 M -$1,887 M The discount rate for the project is 29.0% per annum and spreadsheet analysis has found an internal rate of return of 21.0% per annum. Given this information, should the firm invest in the project?
- GTO Incorporated is considering an investment costing $214,720 that results in net cash flows of $32,000 annually for 10 years. (PV of $1. FV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) (a) What is the internal rate of return of this investment? (b) The hurdle rate is 8.5%. Should the company invest in this project on the basis of internal rate of return? a. Internal rate of return b. Should the company invest in this project on the basis of internal rate of return? %AGE Inc.'s assets in place will be worth either $ 250 Million or $100 million in one year depending on the state of the business conditions. The good and bad states have 60% and 40% probabilities, respectively. The firm has $150 Million (face value) outstanding debt that is due next year. AGE Inc. has an opportunity that requires an investment of $50 Million and offers a safe return of $75 million in one year. The current risk-free rate is 15%. a. Should the firm undertake the project? b. Can the firm successfully raise new equity from its shareholders to fund this investment opportunity? If not, what are the options of the Managers for convincing the shareholders to fund the project? Please explain. c. Would your answers to the previous question if the face value of the debt were $100 million? Please explain.Garfield Inc is considering a new project that requires an initial investment of $37,700 and will generate a net income of $5,331 per year, if the project’s profitability index is 1.8, What is the present value of the project’s future cash flows. Round to the nearest dollar.
