Practice Question Solved: 8 Extensive Enterprise Inc. is expected to generate a free cash flow (FCF) of $13,720.00 million this year (FCF₁ = $13,720.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF2 and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF4). Assume the firm has no nonoperating assets. If Extensive Enterprise Inc.'s weighted average cost of
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- Demo Inc. is expected to generate a free cash flow (FCF) of $8,715.00 million this year (FCF1 = $8,715.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF2 and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF4). Assume the firm has no nonoperating assets. If Demo Inc.'s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Demo Inc.? (Note: Round all intermediate calculations to two decimal places.) $156,455.46 million $26,304.04 million $207,691.99 million $187,746.55 million Demo Inc.'s debt has a market value of $117,342 million, and Demo Inc. has no preferred stock. If Demo Inc. has 600 million shares of common stock outstanding, what is Demo Inc.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $64.19 $71.71 $ 65.19 $195.57Consider the case of Morose Otter Hydraulic Manufacturers Inc.: Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at a rate of 18% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 8% per year, which will last forever (FCF4 - ∞4 - ∞). If Morose Otter’s weighted average cost of capital (WACC) is 16%, complete the following table and compute the current value of Morose Otter’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $210,000 $181,034 FCF22 $247,800 $184,156 FCF33 $292,404 $187,331 FCF44 $315,796 Horizon Value4- ∞4- ∞ $3,157,960 $2,180,141 Vopop = $3,081,485…Consider the case of Morose Otter Hydraulic Manufacturers Inc.: Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at a rate of 18% over the following two years (FCF2 and FCF3). After the third year, however, the company's FCFS are expected to grow at a constant rate of 8% per year, which will last forever (FCF4 - ). If Morose Otter's weighted average cost of capital (WACC) is 16%, complete the following table and compute the current value of Morose Otter's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFS occur at the end of each year. Year CF PV(FCF,) FCF1 $181,034 V $184,156 ▼ $210,000 FCF2 $247,800 $292,404 V $315,796 ▼ $3,157,960 v FCF3 $187,331 FCF4 Horizon Value4- 00 $2,180,141 ▼ $3,081,485 ▼ Vop
- Demo Inc. is expected to generate a free cash flow (FCF) of $6,155.00 million this year (FCF, = $6,155.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF, and FCF,). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets. If Demo Inc.'s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Demo Inc.? (Note: Round all intermediate calculations to two decimal places.) O $110,497.24 million O $18,577.33 million O $146,683.23 million O $132,596.69 million Demo Inc.'s debt has a market value of $82,873 million, and Demo Inc. has no preferred stock. If Demo Inc. has 750 million shares of common stock outstanding, what is Demo Inc.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) O $36.83 O $35.83 O $110.50 O $40.5255An investment is expected to generate net operating cash inflows of $25,000 per year for each of the next 5 years. If the initial amount invested is $101,000, which of the following is closest to the internal rate of return? 24.8% 6.5% 4.0% 7.5%
- A company forecasts free cash flow in one year (i.e. FCF1) to be -$10 million and free cash flow in two years (i.e. FCF2) to be $20 million. After the second year, free cash flow will grow at a constant rate of 4 percent per year forever. If the WACC is 14 percent, what is the current value of operations (i.e., the present value of all future FCF)?An investment is expected to produce the following annual year-end cash flows:year 1: $5,000 year 4: $5,000year 2: $1,000 year 5: $6,000year 3: $0 year 6: $863.65The investment will cost $13,000 today.a. Will this investment be profitable?b. What will be the IRR (compounded annually) on this investment?c. Prove your answer in (b) by showing how much of each year’s cash flow is the recovery of the $13,000 investment and how much of the cash flow is return on investment. (Hint: See Concept Box 3.2.)Consider the case of Flying Cow Aviation Inc.: Flying Cow Aviation Inc. is expected to generate a free cash flow (FCF) of $1,180,000 this year, and the FCF is expected to grow at a rate of 14% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 6% per year, which will last forever (FCF4 - ∞4 - ∞). If Flying Cow’s weighted average cost of capital (WACC) is 12%, complete the following table and compute the current value of Flying Cow’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $1,180,000 FCF22 FCF33 FCF44 Horizon Value4- ∞4- ∞ Vopop = Flying Cow’s debt has a market value of $16,875,959, and Flying Cow has no preferred stock in its…
- Q1. Acme Corp. is expected to generate a free cash flow (FCF) of $9,080.00 million this year (FCF₁ = $9,080.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF₄). Assume the firm has no non-operating assets. If Acme Corp.’s weighted average cost of capital (WACC) is 12.78%, what is the current total firm value of Acme Corp.? (Note: Round all intermediate calculations to two decimal places.) a. $150,504.74 million b. $27,141.27 million c. $204,104.42 million d. $180,605.69 million Q2. Acme Corp.’s debt has a market value of $112,879 million, and Acme Corp. has no preferred stock. If Acme Corp. has 225 million shares of common stock outstanding, what is Acme Corp.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two…Please solve this General accounting questions step by stepAn investment is expected to produce the following annual year-end cash flows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $ 5,000.00 $ 1,127.00 $.00 $ 5,240.00 $ 6,240.00 $ 1,363.40 The investment will cost $13,700 today. Required: a. Will this investment be profitable? b. What will be the IRR (compounded annually) on this investment? c. Show how much of each year's cash flow is recovery of the $13,700 investment and how much of the cash flow is return on investment. (Hint: See Exhibit 3-13 and Concept Box 3.2.) Complete this question by entering your answers in the tabs below. Required A Required B Required C What will be the IRR (compounded annually) on this investment? Internal rate of return %
