Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 14%.a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.$b. Calculate Kendra's value operations. Do not round intermediate calculations. Round your answer to the nearest cent.$

Terminal or Horizon value can be calculated by using below equation Terminal or Horizon value…

Answered: Kendra Enterprises has never paid a…

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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Similar questions

A firm's current profits are $700,000. These profits are expected to grow indefinitely at a constant annual rate of 3 percent. If the firm's opportunity cost of funds is 5 percent, determine the value of the firm: Instructions: Enter your responses rounded to two decimal places. a. The instant before it pays out current profits as dividends. million b. The instant after it pays out current profits as dividends. million
Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow (FCF) for next year is $750,000, and FCF is expected to grow at a constant rate of 4% indefinitely. If the company’s weighted average cost of capital is 10%, what is the value of its operations? a. $18,750,000 b. $12,500,000 c. $7,500,000 d. $13,000,000 e. $10,833,333
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year 1 2 Free Cash flow -$30 $195 a. $3,413 million b. $2,901 million c. $3,044 million d. $2,743 million e. $2,643 million
Pena Company is considering an investment of $30,455 that provides net cash flows of $9,400 annually for four years. (a) If Pena Company requires a 7% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A Required B What is the net present value of this investment? Years 1-4 Net present value Net Cash Flows X PV Factor
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 4.0% after Year 2, then what is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year0 FCF -$40 Year 1 FCF $150
Veggie Burgers, Inc. would like to maintain its cash account at a minimum level of $247,000 but expects the standard deviation in net daily cash flows to be $12,200, the effective annual rate on marketable securities to be 4.9 percent per year, and the trading cost per sale or purchase of marketable securities to be $28.50 per transaction. What will be its optimal cash return point? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) Optimal cash return point
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Year 1 $250,000 Annual Cash Flows Year 2 $20,000 Year 3 Year 4 $180,000 $450,000 Year 5 $550,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?

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