MaxValue is expected to have EBIT of $1,500,000.00 one year from now. Because MaxValue is in a mature industry, the CEO expects the company's EBIT to grow at the stable growth rate of 2% per year forever. The firm's WACC is 9% and its corporate tax rate is 40%. Capital expenditures are 25% of EBIT while changes in networking capital is 10% of EBIT. Depreciation is 15% of EBIT. What is the value of the firm? a) $21,428,571.43 Ob) $8,742,857.14 c) $17,142,857.14 d) $8,571,428.57 e) $16,071,428.57

MaxValue is expected to have EBIT of $1,500,000.00 one year from now. Because MaxValue is in a mature industry, the CEO expects the company's EBIT to grow at the stable growth rate of 2% per year forever. The firm's WACC is 9% and its corporate tax rate is 40%. Capital expenditures are 25% of EBIT while changes in networking capital is 10% of EBIT. Depreciation is 15% of EBIT. What is the value of the firm? a) $21,428,571.43 Ob) $8,742,857.14 c) $17,142,857.14 d) $8,571,428.57 e) $16,071,428.57

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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Blur Corp. has an expected net operating profit after taxes, EBIT(1-T), of $7,600 million in the coming year. In addition, the firm is expected to have net capital expenditures of $1,140 million, and net operating working capital (NOWC) is expected to increase by $10 million. How much free cash flow (FCF) Is Blur Corp. expected to generate over the next year? ○ $118,668 million $6,450 million ○ $8,730 million O $6,470 million Blur Corp.'s FCFs are expected to grow at a constant rate of 4.62% per year in the future. The market value of Blur Corp.'s outstanding debt is $31,412 million, and its preferred stocks' value is $17,451 million. Blur Corp. has 150 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 13.86%. Term Total firm value Intrinsic value of common equity Intrinsic value per share Value (Millions) Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table.…
PQR Corporation expects to have earnings this coming year of $3 per share (year 1). It plans to retain all of its earnings for the next two years (year 1 and year 2). For the subsequent two years ( year 3 and year 4), the firm will retain 50% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25% per year. Any earnings that are not retained will be paid out as dividends. Assume PQR's share count remains constant and all earnings growth comes from reinvestment of retained earnings. 4.1) Project dividends for years 1 to 6. 4.2) If PQR's equity cost of capital is 10%, what price would you estimate for PQR's stock?
Galeshouse Gas Stations, Inc ., expects to increase from $1,500,000 to $1,700,000 nect year. Mr. Galeshouse beleives that net assets (Assets -Liablities) will represent 70 percent of sales. His firm has a 10 % return on sales and pays 40% of profits out as dividends. A) What effect will growth have on funds? B) If the dividend payout is only 15% , what effect will growth have on funds?
Red Bison Petroleum Producers Inc. is expected to generate $240,000,000 in net income over the next year. Red Bison Petroleum Producers’s stockholders expect it to maintain its long-run dividend payout ratio of 20% of earnings. If the firm wants to maintain its current capital structure of 60% debt and 40% equity, what is the maximum capital budget it can support with this year’s expected net income? Red Bison Petroleum Producers is considering using more equity and less debt in its capital structure. Which of these statements best describes how this will affect the firm’s annual dividend, assuming that all other factors are held constant? Red Bison Petroleum Producers will pay a smaller annual dividend if it goes forward with this decision. Red Bison Petroleum Producers’s annual dividend will be greater if it goes forward with this decision. What kind of company is most likely to follow a strict residual distribution policy? A firm with…
Sisters Corporation expects to earn $28 per share next year. The firm’s ROE is 10% and its plowback ratio is 40%. Assume the firm’s market capitalization rate is 10%. What is the present value of its growth opportunities?
STARS Inc. forecasts a positive Free Cash Flow for the coming year, with FCF1 = $10,000,000, and it expects a growth rate of 20% for the next two years. After Year 3, FCF is expected to grow at a constant rate of 6% forever. The Weighted Average Cost of Capital (WACC) is 10.00%, and the company has $85,000,000 of long-term debt (the remainder is comprised of common equity) and 12.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock? (Ch. 9) Group of answer choices 27.75 21.22 19.29 24.12 26.38
XYZ Corp. is anticipating a sustained growth rate of 15% per year. Is it possible for them to achieve this growth rate given the following numbers. Debtequity ratio of 0.40 times Profit margin is 5.3 percent Capital Intensity Ratio is 0,75 times to answer: determine what the dividend payout ratio must be. How do you interpret the result?
Kosm Inc. forecasts a positive Free Cash Flow for the coming year, with FCF1 = $10,000,000, and it expects a growth rate of 30% for the next two years. After Year 3, FCF is expected to grow at a constant rate of 4% forever. The Weighted Average Cost of Capital (WACC) is 11%, and the company has $65,000,000 of long-term debt (the remainder is comprised of common equity) and 10.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?
Alfa Inc company is targeted for merger. In the present, the revenues of the company are $10 mil and it is forecast that in the next years it will increase by 10% each year. The operating expenses are $8 mil, which are expected to grow with the same growth rate as the revenues. Depreciation is $500,000 and is estimated to increase by $50,000/year. The investment needs (CAPEX) are $200,000 each year, and the short term financing needs (NWC) are estimated at 2% of turnover. The company has $1 mil in net debts, at an interest rate of 4.5%. The risk-free rate for government bonds is 4.5%, the market risk premium is 6% and beta coefficient is 1.5. The D/E ratio is 0.5After the merger, the D/E ratio will be 0.35 taking into account the repayment of loans forecasted by the acquirer. Net debt = 700,000 after the deal b) Will the company record a financial synergy. Compute the value of the synergy. c) $10 mil will be a good price for the deal?
A firm has Sales of $25,000,000, total assets of $22,000,000, current assets of $8,000,000, spontaneous liabilities of $5,000,000, a profit margin of 5 percent, a tax rate of 40%, and a dividend payout rate of 20 percent. Sales are expected to increase to $28,000,000 for the coming year, and the firm will need to increase its fixed assets at this level of sales (that is, fixed assets will increase proportionately with sales). Given this information, and using the equation approach, determine the additional funds needed for the coming year. O $950,000 O $1.010,000 Ⓒ$920.000 $980,000 O $1,040,000
You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 11%, then the price of a share of Bean's stock is closest to: A. $53.31 B. $33.32 *C. $19.99 D. $13.33
Keraz Inc. has recently reported a Free Cash Flow (FCF) of $21.5 million. The CFO expects that FCF will grow at a constant rate of 8% per year. Keraz’s WACC is equal to 11% and it has 6 million shares outstanding. What is Keraz’s value of operations?

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