Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:| Year | 1 | 2 | 3 | 4 | 5 ||------|-----|-----|-----|-----|-----|| FCF ($ million) | 52.4 | 67.9 | 79.3 | 73.1 | 81.9 |After that, the free cash flows are expected to grow at the industry average of 4.1% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14.7%:a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $320 million, and 44 million shares outstanding, estimate its share price.

Concept. Value of firm = value of equity + value of debt. For calculating value of firm , present…

Answered: Heavy Metal Corporation is expected to…

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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Smith and T Co. is expected to generate a free cash flow (FCF) of $10,180.00 million this year (FCF₁ = $10,180.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Smith and T Co.’s weighted average cost of capital (WACC) is 8.46%, what is the current total firm value of Smith and T Co.? (Note: Round all intermediate calculations to two decimal places.) $295,231.37 million $305,167.35 million $31,650.86 million $246,026.14 million Smith and T Co.’s debt has a market value of $184,520 million, and Smith and T Co. has no preferred stock. If Smith and T Co. has 300 million shares of common stock outstanding, what is Smith and T Co.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate…
The expected Cash Flow From Assets of The Skate Shop for the next two years are $208,000 and $218,000 respectively. After these two years, the growth rate of these cash flows will be a constant 4.7% per year.Assuming a discount rate of 9.7%, what is the present value of the terminal value of this firm?
Lex Corp. is expected to generate a free cash flow (FCF) of $4,555.00 million this year (FCF, = $4,555.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF, and FCF,). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets. If Lex Corp.'s weighted average cost of capital (WACC) is 8.46%, what is the current total firm value of Lex Corp.? (Note: Round all intermediate calculations to two decimal places.) $132,100.10 million $110,083.42 million O $14,162.05 million O $136,545.92 million Lex Corp.'s debt has a market value of $82,563 million, and Lex Corp. has no preferred stock. If Lex Corp. has 525 million shares of common stock outstanding, what is Lex Corp.'s estimated Intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) O $157.26 O $57.66 O $51.42 O $52.42
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ABC Telecom Inc. is expected to generate a free cash flow (FCF) of $1,570.00 million this year (FCF₁ = $1,570.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If ABC Telecom Inc.’s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of ABC Telecom Inc.? (Note: Round all intermediate calculations to two decimal places.) ABC Telecom Inc.’s debt has a market value of $21,139 million, and ABC Telecom Inc. has no preferred stock. If ABC Telecom Inc. has 675 million shares of common stock outstanding, what is ABC Telecom Inc.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.)
You are valuing a firm that is expected to earn cash flows that grow at 10% for the first five years and at 5% in perpetuity thereafter. The forecasted cash flow next period is $100m (which includes the 10% growth) and you estimate a discount rate of 11%. What is the present value of these cash flows?
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dantzler's WACC is 12%. Year 0 1 2 3 ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ...... FCF ($ millions) - $22 $19 $52 What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.$ million What is the firm's market value today? Assume that Dantzler has zero nonoperating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two…
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Luthor Corp. is expected to generate a free cash flow (FCF) of $6,415.00 million this year (FCF₁ = $6,415.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Luthor Corp.’s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Luthor Corp.? (Note: Round all intermediate calculations to two decimal places.) A.) $152,879.38 million B.) $115,164.84 million C.) $19,362.07 million D.) $138,197.81 million Luthor Corp.’s debt has a market value of $86,374 million, and Luthor Corp. has no preferred stock. If Luthor Corp. has 675 million shares of common stock outstanding, what is Luthor Corp.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to…
Consider the case of Morose Otter Hydraulic Manufacturers Inc.: Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at a rate of 18% over the following two years (FCF2 and FCF3). After the third year, however, the company's FCFS are expected to grow at a constant rate of 8% per year, which will last forever (FCF4 - ). If Morose Otter's weighted average cost of capital (WACC) is 16%, complete the following table and compute the current value of Morose Otter's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFS occur at the end of each year. Year CF PV(FCF,) FCF1 $181,034 V $184,156 ▼ $210,000 FCF2 $247,800 $292,404 V $315,796 ▼ $3,157,960 v FCF3 $187,331 FCF4 Horizon Value4- 00 $2,180,141 ▼ $3,081,485 ▼ Vop

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