Problem 8-10You are building a free cash flow to the firm model. You expect sales to grow from $1.6 billion for the year that just ended to $2 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 then at aconstant rate of 4.063955% for year 6 and onward after that. Use the following information to calculate the value of the equity on a per-share basis.a. Assume that the company currently has $528 million of net PP&E.b. The company currently has $176 million of net working capital.c. The company has operating margins of 11 percent and has an effective tax rate of 30 percent.d. The company has a weighted average cost of capital of 10 percent. This is based on a capital structure of two-thirds equity and one-third debt.e. The firm has 1 million shares outstanding.Do not round intermediate calculations, Round your answer to the nearest cent.$

Here, in millionSales $ 1,600.00Sales After 5 years $ 2,000.00Growth Rate4.563955%Growth Rate…

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 13
Problem 1 Using Microsoft Excel, create an investment cash-flow diagram that will have a present worth of zero using MARR = 12%. The study period needs to be exactly 9 years and each year should have at least one unique cash-flow that is different from the cash-flows over the other years. Your answer should contain a table showing the cash-flows for each year and a graphical representation of the cash-flows (cash-flow diagram).
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?
Normaltown Corporation An analyst has predicted the free cash flows for Normaltown Corporation for the next four years: YEAR 2004 FCF $13 million 2005 $17 million 2006 $23 million 2007 $28 million After 2007, the free cash flows are expected to grow at an annual rate of 4%. The weighted average cost of capital for Normaltown is 14%. If the market value of the firm's debt is $110 million, find the value of the firm's equity. $158.77 million $89.39 million $216.00 million $119.00 million
None
Q1 (A). An investment of $100 produces rate of return as followsIn year 1: a gain of 10 percentIn year 2: a loss of 5% percentIn year 3: a loss of 8 percentIn year 4: a gain of 3 percent.Calculate the value of the investment at the end of the fourth year and calculate the mean annual rate of return.Q1 (B). What is more important for a firm–profit maximization or value maximization? What issues or conflict of interest can come up between owners and managers and how can they be solved? Q2 (A). On January 12, 2008 Best buy purchases a lot for $48000. The business made a partial payment of $10000 once every thirty days, beginning February 11. On June 11 it plan to make the last payment plus the interest. If the rate of interest is 8%, what is the amount due?Q2 (B). An instrument having a face value of $1000 is discounted at 6% for three years and two months. Find the proceeds and compound discount.Q2 (C). You have an outstanding loan currently. The bank requires you to pay in three…
How much money can Company C spend now instead of spending $200,000 in year 8 if the interest rates are estimated to be 8% per year in years 1 to 3, 10% per year in years 4 and 5 and 12% per year the remaining years? use a cash flow diagram and manual solution.
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.
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?
I. Provide an answer with solution

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