Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 T)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.9%; the market value of the company's debt is $2.6 billion; and the company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 T)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.9%; the market value of the company's debt is $2.6 billion; and the company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
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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![Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating
income [EBIT(1 - T)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital
expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The
firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of
each year. The firm's weighted average cost of capital is 8.9%; the market value of the company's debt is $2.6 billion; and the
company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no
plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation
model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round
your answer to the nearest cent.
$
per share
Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.
Year
1
2
3
4
5
FCF
- $22.11 $38.4 $43.6 $51.1
$56.3
The weighted average cost of capital is 10%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm
has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 19 million shares
outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer
to the nearest cent. Do not round intermediate calculations.
$
per share
According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on
the length of time the investor plans to hold the stock.
The statement above is -Select- ✓](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffcc8582f-138d-41c3-90e1-c5fe92213dca%2F318fb9f1-f03c-432d-ba8e-108791041dd4%2F2he0m6o_processed.png&w=3840&q=75)
Transcribed Image Text:Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating
income [EBIT(1 - T)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital
expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The
firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of
each year. The firm's weighted average cost of capital is 8.9%; the market value of the company's debt is $2.6 billion; and the
company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no
plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation
model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round
your answer to the nearest cent.
$
per share
Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.
Year
1
2
3
4
5
FCF
- $22.11 $38.4 $43.6 $51.1
$56.3
The weighted average cost of capital is 10%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm
has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 19 million shares
outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer
to the nearest cent. Do not round intermediate calculations.
$
per share
According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on
the length of time the investor plans to hold the stock.
The statement above is -Select- ✓
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