Problem 8-10You are building a free cash flow to the firm model. You expect sales to grow from $1.2 billion for theyear that just ended to $1.38 billion five years from now. Assume that the company will not become anymore or less efficient in the future. Assume that the company will grow at a constant rate for 5 years,and then at a constant rate of 2.334672% for year 6 and onward after that. Use the followinginformation to calculate the value of the equity on a per-share basis.a. Assume that the company currently has $324 million of net PP&E.b. The company currently has $108 million of net working capital.c. The company has operating margins of 12 percent and has an effective tax rate of 31 percent.d. The company has a weighted average cost of capital of 11 percent. This is based on a capitalstructure of two-thirds equity and one-third debt.e. The firm has 1 million shares outstanding.Do not round intermediate calculations. Round your answer to the nearest cent.

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Answered: Problem 8-10 You are building a free…

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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question 14
7. Assume a company is going to make an investment of $300,000 in a machine and the following are the cash flows that two different products would bring in years one through four. The company's required rate of return is 12%. Option A Option B Product A Product B $190,000 $150,000 190,000 180,000 60,000 60,000 20,000 70,000 Using the appropriate EXCEL spreadsheet in the Chapter11 NPV IRR Analysis.xlsx Download Chapter11 NPV IRR Analysis.xlsx, answer the following questions: What is the NPV for Option A? What is the NPV for Option B? What is the IRR for Option A? What is the IRR for Option B? PLEASE NOTE #1: The dollar amounts will be with "$" and commas as needed and rounded to two decimal places (i.e. $12,345.67). Round your IRR answers, in percentage format, to two decimal places (i.e. 12.34%). Given the above answers, which project should the…
8 A company expects a constant free cash flow of 240 mil per year forever. if the WACC is 12%, what is the value of operations?
son.5
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Solve Problem 20.17 using Excel.
Problem 3: A banking service project has an investment of $875,000. It has profits of $335,000 in years 1,3,5,7, and 9, and $157,000 in years 2,4,6,8,and 10. Assume the required rate of return is 20% and the inflation rate is 2.5%. Using the Net Present Value method, determine if the banking company should invest in this project.
QUESTION 7 A company is considering to invest in a project that is expected to yield the following cash flows; the firm's required rate of return from the project is 10%. Initial Outflow = $200,000 Cash Flow Year 1 = $80,000 Cash Flow Year 4 = $160,000 Cash Flow Year 5 = $120,000 What is the project's NPV? O 50,310.77 O 49,689.85 O 56,519.98 O 42,859.72 O 36,029.58
Question 2
13 You are planning to produce a new action figure called "Nia." However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $86 million per year for three years (starting next year [i.e., at t= 1]). If it fails, you will only have net cash flows of $46 million per year for two years (also starting next year). There is an equal chance that it will be a hit or failure (probability = 50 percent). You will not know whether it is a hit or a failure until the first year's cash flows are in (i.e., at t= 1). You must spend $152 million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $96 million once the first year's cash flows are received, calculate the value of the abandonment option. (The discount rate is 10 percent.) Multiple Choice $0.00 -$5.15 $24.63 $19.48
Question 2 A corporate treasury estimates that an investment of $ 50 million to expand the manufacturing capacity of its company's main product line would generate additional cash flows of $ 12 million per year for 5 years. Assuming a discount rate of 8% calculate: a) The Net Present value of the stream of returns of the expansion b) The profitability index c) The internal rate of return d) Should the company proceed with the investment?

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