The Fastline Logistics Corporation is expected to have the following post-merger FCFF(Free Cash Flow to Firm). In the fifth year after the acquisition, the firm is expected tostabilize in a constant growth state with g=2.6% for the foreseeable future. The marginaltax rate faced by the firm after the merger will be 21%. The firm's cost of commonequity has been estimated as 14.5% while the firm's WACC is 6.3%. The firm has nononoperating assets.FCFFEstimated InterestExpenseWhat is the value of the firm?Year One$14 mil.$9 mil.Answer:Year Two$16 mil.$7 mil.Year Three$18 mil.$5 mil.Report your answer in millions of dollars rounded to 1 decimal place.Year Four$21 mil.$ 3 mil.

Terminal value is calculated as follows:-Terminal value = whereC= cash flowsg= growth rater=…

Answered: Logistics 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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Vonderboom Company just paid a dividend of $1.67 per share to its stocholders. Market analysts believe Vonderboom Company will grow by 19% next year, 13.75% the following year, and 13% the year after. Then, it is projected that Vonderboom Compnay will grow at a constant rate of 4.75% per year indefinitely. The current rate of interest on risk - free assets is 2.51 %, and the rate of return on market portfolio is 11.25 %. Vonderboom Company's beta is estimate to be 1.09. What is the estimate of the current market price of Vonderboom Company's stock?
In year 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to grow at a rate of 2.7% per year. The firm will make no net investments (i.e., capital expenditures will equal depreciation) or changes to net working capital. Assume that the corporate tax rate equals 45%. Right now, the firm has $7,250 in risk-free debt. It plans to keep a constant ratio of debt to equity every year, so that on average the debt will also grow by 2.7% per year. Suppose the risk-free rate equals 4.5%, and the expected return on the market equals 9.9%. The asset beta for this industry is 1.93. Using the WACC, the expected return for AMC equity is 25.71%. Assuming that the proceeds from any increases in debt are paid out to equity holders, what cash flows do the equity holders expect to receive in one year? At what rate are those cash flows expected to grow using the FTE method? (Hold all intermediate calculations to at least 6 decimal places and round to the…
Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.5% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. _____% What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places. _____%
Sisters Corporation expects to earn $12 per share next year. The firm's ROE is 15% and its plowback ratio is 60%. Assume the firm's market capitalization rate is 10%. What is the present value of its growth opportunities?
Honda Inc. (HI) has the following capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. Honda Inc.’s tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. Honda Inc. paid a dividend of $3.70 per share last year (D0), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and Honda Inc.’s beta is 1.3. The following terms would apply to new security offerings. Preferred: New preferred could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs of $5 per share would be incurred. Debt: Debt could be sold at an interest rate of 9%. Common: New common equity will be raised only by retaining earnings a. Find the component costs of debt, preferred stock, and common stock. b. What is the WACC?
Al-Shamukh Constructors Ltd. currently has sales of OMR 24 million a year, with a stock level of 25 percent of the sales. Annual holding cost for the stock 20 percent of valueOperating cost (excluding the cost of stocks) are OMR 15 million a year and other assets are valued at OMR 30 million. If the stocks levels are reduced to 20 percent of the sales, then what will be the improvement (or reduction) in the rate of return on asset in percentage?
A company is projected to generate revenues of $336 million and $406 million over the next two years. After that, the company is assumed to enter its terminal phase with steady growth. Given the following information, how much is each share worth today? Answer in dollars rounded to one decimal place. Forecasted operating margin: 35.4%. Forecasted tax rate: 22.2%. Forecasted reinvestment rate: 30%. Forecasted steady growth rate of free cash flow: 1.3% per year. Cost of capital: 13.2%. Debt: $40 million. Cash: $35 million. Shares outstanding: 12 million.
Talsa, Inc., an all-equity firm, operates in the growing electric vehicle market. Over the next three years (T 1,2,3). Talsa, Inc., is expected to generate FCF of $2.4 billion, $3.6 billion, and $5.0 billion. After Year 3, FCF is expected to grow at a constant rate of 3.0 percent per year, resulting in an Exit Value of $57.22 billion. Talsa has 500 million shares outstanding. What is Talsa's intrinsic price/share based on a FCF valuation of the firm? O $89.74 O $101.33 O $98.60 Ⓒ$95.55 FOR OA
The Black Bird Company plans an expansion. The expansion is to be financed by selling $21 million in new debt and $57 million in new common stock. The before-tax required rate of return on debt is 9.77% percent and the required rate of return on equity is 13.11% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?
Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in business for one more year. The economy is has recently been expanding. According to consensus forecasts, the probability of the continuation of the current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, each firm will generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before interest and taxes of £800,000. Phil’s debt obligation requires the firm to pay £750,000 at the end of the year. Costas’s debt obligation requires the firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is the market value of (i) Phil plc and (ii) Costas plc? a None of the above b (i) £1,321,739 and (ii) £1,153,435 c (i) £1,530,435 and (ii) £1,530,435 d (i) £1,321,739 and (ii) £1,321,739 e (i)…
Cake World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. Compute for the maximum bid price that Cake World can offer in the acquisition
Lily Co. is expected to pay a dividend of $12 at the end of this year. The firm would like to issue new common stock to raise project funds but expects to incur flotation costs of 4%. The company's dividends are expected to grow at a constant rate of 6% indefinitely. Currently the stock is selling for $120. What is the after-tax cost of this firm’s equity? Assume a tax rate of 40%.

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