**Forecasting Free Cash Flows for Hadley Inc.**Hadley Inc. has forecasted the year-end free cash flows (in millions) as detailed below:| Year | 1 | 2 | 3 | 4 | 5 ||------|-------|------|-------|-----|-------|| FCF | -22.82 | 38.8 | 43.5 | 52 | 56.3 |**Analysis and Valuation Details:**- **Weighted Average Cost of Capital (WACC):** This is 12%.- **Future Growth Rate of FCFs:** The free cash flows (FCFs) are expected to continue growing at a rate of 3% after year 5.- **Debt and Equity Information:** - The firm holds $26 million in market-value debt. - There is no preferred stock or other outstanding claims.- **Shares Outstanding:** The company has 70 million shares.- **Assets:** The firm has zero non-operating assets.**Task:**Determine the value of the stock price today (Year 0), given all the information above.- Stock Price Formula: $\_\_\_$ per share.

The value of company can be found as the present value of free cash flow of the project and terminal…

The weighted average cost of capital is and the FCFS are expected to continue, year 5. The growing at a 3% rate after firm has $26 million of markat-value deb- but it has no preferred stuck or any other outstanding claims. There are 20 million Shares outstanding. Also, the firm has zero na greeds laat is the value of the

The weighted average cost of capital is and the FCFS are expected to continue, year 5. The growing at a 3% rate after firm has $26 million of markat-value deb- but it has no preferred stuck or any other outstanding claims. There are 20 million Shares outstanding. Also, the firm has zero na greeds laat is the value of the

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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ABC Inc expects to have EPS (earning per share) of $5 in the coming year. The firms plan to pay all of its earning as a dividend. With this expectation of no growth the firm current share price is $50 per share. Suppose that ABC Inc decided to cut its dividend payout rate to 80% for the foreseeable future and use retaining earning for the new project. Return on this project is expected to be 15%. Assuming equity cost of capital is unchanged, what effect would this new policy have on ABC`s stock (what is the new price)?
Wax Engineering Inc. (WEI) has the following capital structure, which is considered to be optimal: Debt 40% Preferred stock 10% Common equity 50% 100% The risk-free rate is 7%, the market risk premium is 6%, and WEI’s beta is 1.2. The current price of the common stock is $50, its current dividend is $4.19, and they are expected to grow at 5% per year in the future. WEI’s bonds earn a return of 10%, and the risk premium on its stock over its own bond is estimated as 4%. WEI’s tax rate is 40%. WEI can obtain new capital in the following ways: · Preferred stock: New preferred stock with a dividend of $10 can be sold to the public at a price of $111.10 per share. · Debt: Debt can be sold at an interest rate of 10 percent. Determine the cost of common equity using the bond-yield-plus-risk premium approach. Which answers? 13.8% 13.0% 14.2% 14.0%
Start-Up Industries is a new firm that has raised $400 million by selling shares of stock Management plans to earn a 20% rate of return on equity, which is more than the 12% rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm. B. What will be Start-Up's ratio of market value to book value? Note: Do not round intermediate calculations. Market-to-book ratio b. What will be Start-Up's ratio of market value to book value if the firm can earn only a rate of return of 8% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal place. Market-to-book ratio
Free cash flow to firm for JC de Vera Corporation is currently $300,345,800.00 but is expected to grow by 4 and 3/4% each year forever. If the company's cost of capital is 10 and 7/8% how much is it worth? if market value of debt is $3,000,123,789.00 and JC de Vera Corporation has 200,500,100 million shares outstanding. How much is the value of equity?
GRK Co. is currently an all-equity firm with an expected return of 10%. The expected EBIT is $ 50,000 forever. Assume that the firm distributes all the net income to the equity holders. The firm is considering a leveraged recapitalization in which it would borrow $ 250,000 and repurchase existing shares. The firm's tax rate is 40%. The cost of debt is 7%. 1/ Calculate the value of the firm with leverage.
Bulldogs Inc.’s has insufficient retained earnings to finance its capital projects and decided to issue fresh ordinary stocks. The current stock price of Bulldogs Inc. is P13.50. The firm is expected to grow at a constant rate of 2% per year and it is anticipating to pay-out a dividend of P1.50 per share at the year-end. How much is the peso floatation cost if the cost of new equity is 17%?
Heinfeldt Inc. forecasts the free cash flows (FCFs) (in millions) shown below. The weighted average cost of capital (WACC) is 12%, and the FCFs are expected to continue growing at a 4% rate after Year 3. The firm has $168.05 million of market - value debt, but it has no preferred stock or any other outstanding claims. There are 50 million shares outstanding. Year 1 2 3 FCF $80 $ 130 $200 a. What is the estimated stock price today ( Year 0)? b. Set up a simple Excel data table where you show how the estimated intrinsic value varies as the long - run growth rate varies over the following range (2.00%, 2.25%, 2.50%, 2.75%, 3.00%, 3.25%, 3.50%, and 4.75%) assuming everything else stays constant.
Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $300 million, and its FCF is expected to grow at a constant rate of 7.5% in the future. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 12.5%, what is the firm's total corporate value, in millions? a. $4,300 million b. $6,000 million c. $2,400 million d. $2,580 million e. $6,450 million
Yamana Gold Inc. (AUY) currently no pays dividend but its new management will pay a dividend at the end of Year 4. Year 4 earnings are expected to be $2.97, and AUY will maintain a payout ratio of 47%. With an assumption that AUY’s constant growth rate is 3.42%, and a required rate of return of 7.17%, the present value of AUY is closest to A. $30.24. B. $49.71. C. $70.92. D. $91.86.
1. . Assuming that shareholders expect no growth from their investment, what would the cost of equity be? 2. If retained earnings were used instead of new issuances, what would the cost of the new financing be?
National Co. has established a target capital structure of 30% debt and 70% common equity. The current market price of the firm’s stock is P25. It’s last dividend was P2 and its expected dividend growth rate is 2%. What will be the marginal cost of retained earnings be? 10.16% 14.8% 8.90% 11.9%
5. SIROM Scientific Solutions has £12 million of outstanding equity and £4 million of bank debt. The bank debt costs 4% per year. The estimated equity beta is 1. If the market risk premium is 8% and the risk-free rate is 4%, calculate the weighted average cost of capital if the firm's tax rate is 30%. A. 8.73% B. 9.22% C. 9.70% D. 10.67%

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