Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grownrapidly. Forecasts made in 2019 are as follows:($ millions)Net incomeInvestmentFree cash flow20201.01.002021 20222.54.21.51.71.02.520234.701.92.820245.01.93.1Phoenix's recovery will be complete by 2024, and there will be no further growth in netincome or free cash flow.a) Calculate the PV of free cash flow, assuming a cost of equity of 10%.b) Assume that Phoenix has 12 million shares outstanding. What is the price per share?

Value of the firm on 2024 = 3.1 / 0.1 = 31 millionYearFree cash flowPV factor @ 10%Present value…

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows: ($ millions) Net income Investment Free cash flow 2020 1.0 1.0 0 2021 2022 2.5 4.2 1.5 1.7 1.0 2.5 2023 2024 4.70 5.0 1.9 1.9 2.8 3.1 Phoenix's recovery will be complete by 2024, and there will be no further growth in net income or free cash flow. a) Calculate the PV of free cash flow, assuming a cost of equity of 10%. b) Assume that Phoenix has 12 million shares outstanding. What is the price per share?

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows: ($ millions) Net income Investment Free cash flow 2020 1.0 1.0 0 2021 2022 2.5 4.2 1.5 1.7 1.0 2.5 2023 2024 4.70 5.0 1.9 1.9 2.8 3.1 Phoenix's recovery will be complete by 2024, and there will be no further growth in net income or free cash flow. a) Calculate the PV of free cash flow, assuming a cost of equity of 10%. b) Assume that Phoenix has 12 million shares outstanding. What is the price per share?

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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2. Mathias Company estimated that it has a 20% probability of receiving $240,000 one year from now, a 30% probability of receiving $240,000 two years from now, and a 50% probability of receiving $240,000 three years from now. Required: Using the FASB's concept of "expected cash flows," calculate the present value of the expected cash flows assuming a 10% interest rate compounded annually
JenBritt Incorporated had a free cash flow (FCF) of $76 million in 2019. The firm projects FCF of $255 million in 2020 and $640 million in 2021. FCF is expected to grow at a constant rate of 4% in 2022 and thereafter. The weighted average cost of capital is 10%. What is the current (i.e., beginning of 2020) value of operations? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to two decimal places. $ million
The following is a four-year forecast for Torino Marine. Year Free cash flow ($ millions) 2022 -63 a. Fair market value b. Fair market value per share 2023 84 2024 101 a. Estimate the fair market value of Torino Marine at the end of 2021. Assume that after 2025, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine's weighted-average cost of capital is 9 percent and its tax rate is 20 percent. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place. million 2025 123 b. Estimate the fair market value per share of Torino Marine's equity at the end of 2021 if the company has 48 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $380 million. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
The following is a four-year forecast for Torino Marine. Year 2022 2023 2024 2025 Free cash flow ($ millions) −60 81 98 120 Estimate the fair market value of Torino Marine at the end of 2021. Assume that after 2025, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine’s weighted-average cost of capital is 13 percent and its tax rate is 20 percent. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place. Estimate the fair market value per share of Torino Marine’s equity at the end of 2021 if the company has 45 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $350 million. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. I have the second question right…
29. Valuing a business (S4.6) Phoenix Corp. faltered during the Covid pandemic but is recovering. Free cash flow has grown rapidly. Forecasts made in 2021 are as follows: ($ millions) Net income Investment Free cash flow 2022 1.0 1.0 0 2023 2.0 1.0 1.0 2024 3.2 1.2 2.0 2025 3.7 1.4 2.3 Phoenix's recovery will be complete by 2026, and there will be no further growth in net income or free cash flow. a. Calculate the PV of free cash flow, assuming a cost of equity of 9%. b. Assume that Phoenix has 12 million shares outstanding. What is the price per share? c. Confirm that the expected rate of return on Phoenix stock is exactly 9% in each of the years from 2022 to 2026. 2026 4.0 1.4 2.6
The most recent financial statements for xyz inc. follow. Sales for 2019 are projected to grow by 22 percent. Interest expense will remain constant, the tax rate and dividend payout rate will also remain constant. Costs, other expenses, current assets, and accounts payable increase spontaneously with sales. If the firm is operating at full capacity and no new debt or equity is issued. How much external financing is needed to support the 16 percent growth rate in sales? Income statement 2019 Net sales 17,300 Cost of Goods Sold 10,600 Depreciation 3,250 Earning before interest and taxes 3,450 Interest paid 680 Taxable income 2,770 Taxes 940 Net income…
Google Calendar Use the following table and information to answer questions 26 and 27 The following table presents forecasted financial and other information for XTD Corporation. The table shows end of year numbers (in millions). XTD's WACC is 8%. Year 1 Year 2 Year 3 Net income $65 $72 $80 Free cash flow $40 $45 $50 26) What is an appropriate estimate of XTD's terminal value as of today, using warranted price-to-earnings of 12.0 at year 3? $ 1,036.8 million $ 895.2 million $ 762.1 million O $ 888.8 million
Assume that today is December 31, 2021, and that the following information applies to Abner Airlines: ⚫ After-tax operating Income [EBIT(1-T)] for 2022 is expected to be $500 million. The depreciation expense for 2022 is expected to be $160 million. The capital expenditures for 2022 are expected to be $375 million. . No change is expected in net operating working capital. ⚫ The free cash flow is expected to grow at a constant rate of 7% per year. ⚫The required return on equity is 15%. The WACC is 10%. The firm has $204 million of nonoperating assets. ⚫ The market value of the company's debt is $2.885 billion. 190 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.
JenBritt Incorporated had a free cash flow (FCF) of $72 million in 2019. The firm projects FCF of $205 million in 2020 and $480 million in 2021. FCF is expected to grow at a constant rate of 5% in 2022 and thereafter. The weighted average cost of capital is 10%. What is the current (i.e., beginning of 2020) value of operations? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to two decimal places.
Consider another set of net cash flows: Year Cash flow 0 1,500 1 2,000 2 0 3 1,500 4 3,000 5 4,000 What is the net present value of the stream if the opportunity cost of capital is 11 percent? What is the value of the stream at the end of year 5 if the cash flows are invested in an account that pays 11 percent annually? What cash flows today (time 0), in lieu of the 2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5? (assume that the cash flows for years 1 through 5 remain the same.)
Horizon Value of Free Cash Flows Current and projected free cash flows for Radell Global Operations are shown below. Actual 2021 2022 Projected 2023 2024 Free cash flow (millions of dollars) $616.100 $676.780 $716.827 $766.355 Growth is expected to be constant after 2023, and the weighted average cost of capital is 12%. What is the horizon (continuing) value at 2024 if growth from 2023 remains constant? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number. $ million
Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $430 million and its 2020 depreciation expense will be $65 million. Barrington's 2020 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.1%; the market value of the company's debt is $2.95 billion; and the company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate…

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