Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a marketvalue of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division'sestimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, thefirm expects its free cash flow to grow at 4% annually.a.b.C.Year (t)2013201420152016Free cash flow (FCF₂)$ 800,0001,200,0001,400,0001,500,000Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division.Use your finding in part a along with the date provided above to find the division's common stock value.If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in partb to calculate its value per share.

a. The value of the entire division is the present value of its free cash flows and terminal value.…

Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a market value of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division's estimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, the firm expects its free cash flow to grow at 4% annually. Year (f) 2013 2014 2015 2016 Free cash flow (FCF₂) $ 800,000 1,200,000 1,400,000 1,500,000 b. a. Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division. Use your finding in part a along with the date provided above to find the division's common stock value. If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in part b to calculate its value per share. C.

Problem 2. Erwan Footwear wishes to assess the value of its Active Shoe Division. This division has debt with a market value of $12,500,000 and no preferred stock. Its weighted average cost of capital is 10%. The Active Shoe Division's estimated free cash flow each year from 2013 through 2016 is given in the following table. Beyond 2016 to infinity, the firm expects its free cash flow to grow at 4% annually. Year (f) 2013 2014 2015 2016 Free cash flow (FCF₂) $ 800,000 1,200,000 1,400,000 1,500,000 b. a. Use the free cash flow valuation model to estimate the value of Erwan's entire Active Shoe Division. Use your finding in part a along with the date provided above to find the division's common stock value. If the Active Shoe Division as a public company will have 500,000 shares outstanding, use your finding in part b to calculate its value per share. C.

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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Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $300 million, and its FCF is expected to grow at a constant rate of 7.5% in the future. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 12.5%, what is the firm's total corporate value, in millions? a. $4,300 million b. $6,000 million c. $2,400 million d. $2,580 million e. $6,450 million
The following table presents forecasted financial and other information for Scandinavian Furniture: Projected EBIT Earnings after tax Free cash flow Havasham's WACC Expected growth rate in FCFs after 2014 Warranted MV firm/FCF in 2014 Warranted P/E in 2014 O $3,628 million O $363 million O $3,833 million 2012 $317 197 135 O $161 million 8.2% 4.0% What is an appropriate estimate of Scandinavian Furniture's terminal value as of the end of 2014, using the perpetual-growth equation as your estimate? 19.4 18.7 2013 $339 210 144 2014 $363 225 155
Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 6.0% rate after Year 3. What is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year 1 2 3 FCF -$30.0 $10.0 $50.0 a. $510.97 million b. $610.96 million c. $506.02 million d. $540.67 million e. $573.18 million
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