The MoMi Corporation's cash flow from operations before interest and taxes was $2 million in the year just ended, and it expects that this 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 flow each 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 the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to value the firm's equity.

The MoMi Corporation's cash flow from operations before interest and taxes was $2 million in the year just ended, and it expects that this 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 flow each 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 the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to value the firm's equity.

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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Required: The MoMi Corporation's cash flow from operations before interest and taxes was $2 million in the year just ended, and it expects that this 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 flow each 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 the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity. (Enter your answer in dollars not in millions.) X Answer is complete but not entirely correct. Value of the firm Value of the firm's equity $ $ 14,550,000 X 10,550,000 X
A retail coffee company is planning to open new coffee 95 outlets that are expected to generate $13.3 million in free cash flows per year, with a growth rate of 3.3% in perpetuity. If the coffee company's WACC is 10.6%, what is the NPV of this expansion?
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. 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
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