In the most recent fiscal year, a company reported net income of $920 million after incurring S 320 million in interest expenses. (The corporate tax rate was 36%. That year, it reported a S 960 million depreciation and $1.2 billion in capital spending. The company also had $4 billion in debt outstanding, was rated AA (with an 10 percent yield to maturity), and was trading at par. The stock's beta is 1.50, and there were 200 million outstanding shares (trading at $60 each), with a book value of $5 billion. Union Pacific paid out 40% of its earnings as dividends, and working capital requirements are minimal. The Treasury bond rate is 7% and market risk premium is 5.5%. a. Estimate the FCFF for the most recent financial year. Show calculations of each of the following: EBIT FCFF b. Estimate the value of the firm now. Show calculations of each of the following: Re - investment rate ROC Growth rate Cost of equity Cost of capital Value of the firm c. Estimate the value of equity. d. Estimate the value per share.
In the most recent fiscal year, a company reported net income of $920 million after incurring S 320 million in interest expenses. (The corporate tax rate was 36%. That year, it reported a S 960 million depreciation and $1.2 billion in capital spending. The company also had $4 billion in debt outstanding, was rated AA (with an 10 percent yield to maturity), and was trading at par. The stock's beta is 1.50, and there were 200 million outstanding shares (trading at $60 each), with a book value of $5 billion. Union Pacific paid out 40% of its earnings as dividends, and working capital requirements are minimal. The Treasury bond rate is 7% and market risk premium is 5.5%. a. Estimate the FCFF for the most recent financial year. Show calculations of each of the following: EBIT FCFF b. Estimate the value of the firm now. Show calculations of each of the following: Re - investment rate ROC Growth rate Cost of equity Cost of capital Value of the firm c. Estimate the value of equity. d. Estimate the value per share.
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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Transcribed Image Text:In the most recent fiscal year, a company reported net income of $920 million after incurring $
320 million in interest expenses. (The corporate tax rate was 36%. That year, it reported a $
960 million depreciation and $1.2 billion in capital spending. The company also had $4 billion in
debt outstanding, was rated AA (with an 10 percent yield to maturity), and was trading at par.
The stock's beta is 1.50, and there were 200 million outstanding shares (trading at $60 each),
with a book value of $5 billion. Union Pacific paid out 40% of its earnings as dividends, and
working capital requirements are minimal. The Treasury bond rate is 7% and market risk
premium is 5.5%. a. Estimate the FCFF for the most recent financial year. Show calculations of
each of the following: EBIT FCFF b. Estimate the value of the firm now. Show calculations of
each of the following: Re - investment rate ROC Growth rate Cost of equity Cost of capital Value
of the firm c. Estimate the value of equity. d. Estimate the value per share.
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