Kimberly-Clark, a household product manufacturer, reported earnings per share of$3.20 in 1993, and paid dividends per share of $1.70 in that year. The firm reporteddepreciation of $315 million in 1993, and capital expenditures of $475 million. (Therewere 160 million shares outstanding, trading at $51 per share.) This ratio of capitalexpenditures to depreciation is expected to be maintained in the long term. The workingcapital needs are negligible. Kimberly-Clark had debt outstanding of $1.6 billion, andintends to maintain its current financing mix (of debt and equity) to finance futureinvestment needs. Assume that the firm is in steady state, and earnings per share,dividends per share, and free cash flow to equity per share are all expected to grow 7%a year. The stock had a beta of 1.05. The treasury bond rate is 6.25% and the marketrisk premium is 5.50%.A. Estimate the value per share, using the Dividend Discount Model.B. Estimate the value per share, using the FCFE Model.C. How would you explain the difference between the two models, and which onewould you use as your benchmark for comparison to the market price?

Dividend discount model is used in the valuation of equity based on the required rate of dividend…

Answered: Kimberly-Clark, a household product…

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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8
Macon Mills is a division of Bolin Products, Inc. During the most recent year, Macon had a net income of $36 million. Included in the income was interest expense of $3,200,000. The company's tax rate was 40%. Total assets were $465 million, current liabilities were $99,000,000, and $69,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon? Enter your answer in whole dollar. Round "ROI" answer to two decimal places. Invested Capital $ ROI %
Macon Mills is a division of Bolin Products, Inc. During the most recent year, Macon had a net income of $38 million. Included in the income was interest expense of $3,300,000. The company's tax rate was 40%. Total assets were $465 million, current liabilities were $109,000,000, and $67,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon? Enter your answer in whole dollar. Round "ROI" answer to two decimal places.
MPI Incorporated has $4 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 12%, and its return on assets (ROA) is 3%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet What is MPI's times-interest-earned (TIE) ratio? Round your answer to two decimal places.
At last year’s end, total assets for Roberts Inc. were $1.2 million and accounts payable were $375,000. Sales, which last year were $2.5 million, are expected to increase by 25 percent this year. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Robert Inc. typically uses no current liabilities other than accounts payable. Common stock amounted to $425,000 last year, and retained earnings were $295,000. Roberts Inc. plans to sell new common stock in the amount of $75,000. The Firm’s profit margin on sales is 6 percent; and 60 percent of earnings will be retained. Set up Roberts Inc.’s last year balance sheet, to the extent possible, based on the information provided in this problem. Based on the balance sheet setup in Part a above, determine how much was Roberts Inc.’s long-term debt last year? Perform financial forecasting using percent of sales method (i.e., constant ratio method; do not use the AFN Equation) to determine how much…
Payne Products had $2.4 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $2 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne's debt interest rate is currently 10%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 14% of sales. Payne's tax rate is 35%, a. What is the expected return on equity under each current asset level? Round your answers to two decimal places. Tight policy % 76.77 Moderate policy Relaxed policy 9.04 5.05 1% b. In this problem, we have assumed that the level of expected sales is…
(Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,500,000. In addition, the firm pays taxes at 35 percent and will owe $306,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 60 percent of sales and operating expenses will total 26 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ $ $ $ $
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating income last year of $1,198,000. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $9 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent. 1. Calculate the total dollar amount of capital employed for Ignacio, Inc. $ fill in the blank 2. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA is negative, enter your answer as a negative amount. $ fill in the blank

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