Problem 8 10-You are building a free cash flow to the firm model. You expect sales to grow from $1.8 billion for the year that just ended to $1.98 billion five years from now.Assume that the company will not become any more or less efficient in the future. Assume that the company will grow at a constant rate for 5 years, and thenat a constant rate of 1.424488% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share basis.Assume that the company currently has $540 million of net PP&E.The company currently has $180 million of net working capital.The company has operating margins of 10 percent and has an effective tax rate of 28 percent.The company has a weighted average cost of capital of 9 percent. This is based on a capital structure of two-thirds equity and one - third debt.The firm has 2 million shares outstanding.Do not round intermediate calculations. Round your answer to the nearest cent.

Step 1: Step 2: Step 3: Step 4:

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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A risky $420,000 investment is expected to generate the following cash flows: Year 1 2 3 4$ 102,700 $ 163,030 $ 160,824 $ 135,200 If the firm’s cost of capital is 12 percent, should the investment be made?. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.NPV: $ Should The investment be made? An alternative use for the $420,000 is a four-year U.S. Treasury bond that pays $25,200 annually and repays the $420,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 70 percent of the certain investment, which pays 6 percent. Should the investment be made? Use Appendix B to answer the question. Do not round other intermediate calculations. NPV: $ Should The investment be made?
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.
3. You are considering an investment in a business with the following payoffs. You will generate an annual capital cash flow each year indefinitely with the following probability distribution: base case occurs with 50% probability where you earn $2 million; conservative case occurs with probability 30% where you will only earn a distribution with mean of $1 million; and an optimistic case otherwise where you believe you could as much as $5 million but just as likely could earn either $3 million or $4 million (all equally likely in this state). This investment will require an initial outlay of $15 million. Assume your cash flows occur at yearend. Also, the following financial data pertains to your firm: Required Return on Equity 12% Required Return on Debt 6% EPS $ 2 Net Income…
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?
Please help me
Question 4 a. The stock market provides an annual return of 8.4%. A risky project costs £35,000 but provides £20,000 cash flow for two years. Would you invest in the project? Why/Why Not? b. Assume in order to undertake this project the firm needs to undertake project 2 that costs £12,000 but provides a one-year cash flow of £13,500 and project 3 that costs £8,000 but provides three years of cash flow of £3,000. Will the firm still take on the project and how much will firm value and increase? c. Your client has been given a trust fund valued at £1.25 million. He cannot access the money until he turns 65 years old, which is in 25 years. At that time, he can withdraw £24,000 per month. If the trust fund is invested at a 4.5 percent rate, compounded monthly, how many months will it last your client once he starts to withdraw the money? d. You are comparing houses in two towns in Sheffield. You have £100,000 to put as a down payment, and 30-year mortgage rates are at 8% Location 1…

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