Next year's free cash flows for a target firm are expected to be$1,835,000, with constant growth of 3% per year for the foreseeablefuture. The firm's WACC is $16% and current assets are valued at$840,000, with current liabilities estimated at $756,000. Long termdebt has a market value of $8.5 million and the firm has outstandingpreferred stock worth $900,000. If there are 250,000 common sharesoutstanding, what is the estimated market value of the firm's stock?Select one:$5,699,385O $3,575,000O $4,715,000O $14,115,385O $4,799,385

Common stock value will be the present value of all future earnings less debt and preferred stock

Answered: Next year's free cash flows for 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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A company projects a rate of return of 20% on new projects. The executive team plan to plow back 20% of all earnings into the firm. Earnings this year will be $6 per share, and investors expect a rate of return of 12% on stocks facing the same risks as the company. 1) what is the sustainable growth rate 2) what is the stock price 3) What is the present value growth opportunities 4) what is the P/E ration 5) what would the price and PE ratio be if the firm paid out all earnings as dividends?
The stock of Z-Tech Plc is currently selling for £10 per share. Earnings per share in the coming year are expected to be £1.50. The company has a policy of paying out 20% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 7% internal rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Z-Tech’s investors require? b. By how much does Z-Tech’s stock price change if all its earnings are paid as dividends and nothing is reinvested? c. If the company were to increase its dividend payout ratio from 20% to 60%, what would happen to its stock price?
Wild Berry (WB) will remain in business for one more year. At the end of next year, the firm will generate a liquidating cash flow of S370M in a boom year and S150M in a recession year; both states are equally likely. The cost of equity for the unlevered firm is rU = 10%. The firm's outstanding debt matures in a year and has amarket (and book) value of S150M today. The interest payment on this debt is S15M at the end of next year. The corporate tax is ?c = 35%. Corporate taxes is the only relevant market imperfection. 23. What s WB's value as an unlevered firm (VU )2 (A)5 236.4M (8)S 260.0M (€)5336.4M (D) $370.0M
Laurel Enterprises pays annual dividends, and the next dividend is expected to be in one year. Laurel expects earnings next year of $3.58 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment; this is expected to continue forever. What do you estimate the firm's current stock price to be? (Hint: its next dividend is due in one year.) C The current stock price will be $ (Round to the nearest cent.)
What is the cash cow value and the value of its growth opportunities (NPVGO) if a corporation has current earnings of $5 per share and expects to be able to make an investment of 20% of its earnings next year in a new one-time project with an expected return on invested capital of 24%? The discount rate for the firm is 8%. Cash cow value is $62.50 and NPVGO is $1.85 Cash cow value is $20.83 and NPVGO is $2 Cash cow value is $62.50 and NPVGO is $14 Cash cow value is $25.00 and NPVGO is $3 Cash cow value is $25.00 and NPVGO is $3
Nikul
NIKE Corporation will pay an annual dividend of $0.65 one year from now. It expects this dividend to grow at 12% per year thereafter until the fifth year. Thereafter, growth will level off at 2% per year. What is the value of a share of Gillette stock if the firm's equity cost of capital is 8% ?
DataCore INc. has an all-equity capital structure. However, the firm is considering a recapitalization that would structure the firm with 25% debt and 75% equiy by issuing an appropriate amount of debt and repurchasing an equal amount of common stock; the debt is expected to have a 5% coupon rate. The firm expects the following scenarios over the next year for EBIT: Outlook Probability EBIT Good 35% $800,000 Average 40% $525,000 Poor 25% $75,000 The firm currently has 200,000 shared of common stock outstanding at $43 per share. The firm is in a 0% tax bracket 1. Determine the expected earnings before interest and taxes, net income, and earnings per share (a) if the firm maintains its current unlevered capital structure and (b) if it recapitalizes at 25% debt and uses the procedes to repurchase common stock. 2. Following the assumptions behind M&M's Proposition I, calculate the…
Banco Tech is an early stage financial technology firm. Earnings this year where $20 per share and are expected to grow at 20% per year for the next three years. Banco does not plan to pay a dividend until three years time, when the payout ratio will be 43%. Dividends are expected to grow at 6% thereafter. The required rate of return is 9%. Calculated intrinsic value.
ABC Corporation just paid an annual dividend of $0.75. Analysts expect this dividend to grow at 10% in 2020, 8% in 2021, 5% in 2022, and then maintain a constant growth rate of 2%. If the expected cost of capital is 7% what is the present value of the stock?
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The enterprise value of the BestAttempt Corporation is $310 million. The company has issued a zero-coupon bond with a face value of $200 million which expects to mature in five years. The expected rate of change of the ﬁrm's value is 25%. The ﬁrm's assets have an annual volatility (standard deviation) of 30%. Assume that ﬁrm value is lognormally distributed, with constant volatility. You are required to estimate the distance to default using the Merton model. What are/is the main limitation/s of the Merton model? Explain

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