Required:The MoMi Corporation's cash flow from operations before interest and taxes was $2 million in the year just ended, and it expects thatthis will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 20% of pretax cash floweach year. The tax rate is 21%. Depreciation was $200,000 in the year just ended and is expected to grow at the same rate as theoperating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currentlyhas debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity. (Enter youranswer in dollars not in millions.)X Answer is complete but not entirely correct.Value of the firmValue of the firm's equity$$14,550,000 X10,550,000 X

Free cash flow is the cash flow which is available with the firm to distribute to the shareholders.…

Answered: Required: The MoMi Corporation's cash…

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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The Seattle Corporation has been presented with an investment opportunity that will yield end of year cash flows of $30,000 in Year 1, $35,000 per year in years 2 and 3, $45,000 in year 4, and $50,000 in year 5. Thus investment will cost the firm $135,000 today, and the firms cost of capital is 13%. What is the firm’s NPV for this investment?
Your company has a well that needs some work to resume production. The work will cost $550,000. After the work is complete, the well is expected to produce the annual oil production shown in the following table. Your WI is 80% and your NRI is 68%. Operating costs are estimated to be $35,000 per year. Assume a constant oil price of $85/Bbl. Calculate total net cash flow (BFIT) for this investment. Year 1 2 3 8/8ths Production, Bbl 5000 4200 3600 Answer: 2 Would you rather own (A) WI = 80%, NRI = 64% or (B) WI = 40%, NRI = 34% ? WHY? 3 You are going to invest $30,000. Your goal is to double your investment in 10 years. At approximately what interest rate do you need to invest? 4 Your first job gives you an incentive to stay for a minimum of 3 years. At the end of 3 years, the company will give you a bonus of $15,000. Assuming an interest rate of 6% per year, what is the present value of the Bonus? Your bank has quoted you a nominal interest rate of 17%. Your loan will be compounded…
Praxis Corp. is expected to generate a free cash flow (FCF) of $5,670.00 million this year (FCF, = $5,670.00 million), and the FCF is expected to grow at a rate of 22.60% over the following two years (FCF, and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 3.18% per year, which will last forever (FCF). Assume the firm has no nonoperating assets. If Praxis Corp.'s weighted average cost of capital (WACC) is 9.54%, what is the current total firm value of Praxis Corp.? (Note: Round all intermediate calculations to two decimal places.) $155,715.35 million O $17,453.56 million $122,645.86 million $147,175.03 million Praxis Corp.'s debt has a market value of $91,984 million, and Praxis Corp. has no preferred stock. If Praxis Corp. has 375 million shares of common stock outstanding, what is Praxis Corp.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $81.76 $80.76 $89.94 $245.29
The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales Operating costs (not including depreciation) $ $ 22 million 10 million $ 6 million $ 4 million $ Depreciation Interest expense The company faces a 25% tax rate. What is the project's cash flow for the first year (t = 1)? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.
Assume Lasher’s Kitchen has pretax earnings of $150,000 after depreciation expense of $30,000. If the firm’s tax rate is 25 percent, what is its cash flow from operations? Round your answer to the nearest dollar. $
. The Indiana Company has had a great year financially and they are wanting to better understand the amount of free cash flows that they have to invest back into the company. After having sales of $1 million, total costs of $500,000, interest expense of $50,000, depreciation of $100,000, and Capex of $90,000, what is the amount of free cash flow for the company? Assume a 35% tax rate and only use the information that is provided above. a. $220,000 b. $270,000 c. $237,500 d. $335,000 SOOK 50-100
You have the opportunity to expand your business by purchasing new equipment for $152,000. The equipment has a useful life of 9 years. You expect to incur cash fixed costs of $79,000 per year to use this new equipment, and you expect to incur cash variable costs in the amount of 5% of annual revenues. Your cost of capital is 6%. Required: 1. Assume instead you expect a cash revenue stream for this investment. Based on this estimated revenue stream, Year 1 $ 105,000 Year 2 115,000 Year 3 110,000 Year 4 90,000 Year 5 160,000 Year 6 150,000 Year 7 160,000 Year 8 110,000 Year 9 160,000 What are the payback and discounted payback periods for this investment?
Nugent Communication Corp. is investing $7,311,256 in new technologies. The company expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in each of the next four years. Year 1 2 3 4-7 Cash Flows $2,540,230 $3,617,345 $2,867,006 $1,505,500 What is the discounted payback period for the project assuming a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0 for the answer.) The discounted payback period for the project is ___________
The manager of a production system expects to spend S100,000 the first year with amounts increasing by $10,000 each year. Income is expected to be $400,000 the first year, decreasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over an 8 year period at an interest rate of 12% per year. b) Detemine the present worth of the company's net cash flow (present worth = present income present expenditure). Please write fomula and show your solution step by step. Use compound interest tables.
Suppose a business is considering the purchase of a $40,000 machine whose operation will result in increased sales of $30,000 per year and increased operating costs of $10,000; additional profits will be taxed at a rate of 50%. Depreciation is assumed to be taken on a straight-line basis over four years with no expected salvage value. What will happen to this project's real rate of return if inflation during the next four years is expected to be 10% compounded annually?
You are evaluating a new product. In year 3 of your analysis, you are projecting pro forma sales of $4.4 million and cost of goods sold of $2.64 million. You will be depreciating a $1 million machine for 5 years using straight-line depreciation. Your tax rate is 38%. Finally, you expect working capital to increase from $200,000 in year 2 to $295,000 in year 3. What are your pro forma earnings for year 3? What are your pro forma free cash flows for year 3? Complete the following pro forma statement. (Round to the nearest dollar.) Pro Forma Year 3 Sales COGS Depreciation EBIT Tax Earnings Depreciation Net working capital Free cash flows $
Mojave Corporation was looking at an investment that would generate $5,000 in net income before taxes. The company's tax rate is 21%, and there would be $2,000 a year in depreciation on the assets. What is the after-tax cash flow of this investment? $4,370 $5,950 $3,050 $3,950 O None of the above

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