Tin Roof's net cash flows for the next three years are projected at $72,000, $78,000, and $84,000, respectively. After that the cash flows are expected to increase by 2.5 percent annually. Recently issued deb carries an interest rate of 7.85%. Tin Roof's marginal tax rate is 21%. The cost of equity is 11.4 percent. a) What is the value of the firm if it is financed with 40 percent debt and 60 percent equity? b) Tin Roof has 20,300 outstanding shares and are currently trading for $29.00 per share. At this price do you believe that Tin Roof shares are over priced, under priced or fairly priced. Please justify your answer.

Tin Roof's net cash flows for the next three years are projected at $72,000, $78,000, and $84,000, respectively. After that the cash flows are expected to increase by 2.5 percent annually. Recently issued deb carries an interest rate of 7.85%. Tin Roof's marginal tax rate is 21%. The cost of equity is 11.4 percent. a) What is the value of the firm if it is financed with 40 percent debt and 60 percent equity? b) Tin Roof has 20,300 outstanding shares and are currently trading for $29.00 per share. At this price do you believe that Tin Roof shares are over priced, under priced or fairly priced. Please justify your answer.

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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You invest in a company which expects to pay you the following amounts in return each year. Year 1: $1,100, Year 2: $2,100, Year 3: $1,600, Year 4: $2,100, and Year 5 $1,500. If an annual interest rate is 5 percent, what is the present value of this uneven cash flow stream? $7,883 $7,807 $7,563 $7,237
You are applying the Discounted Cash Flow Model on AppleBanana Inc. The current sales of the company is 1.8 billion and you think sales will grow at 12% every year over the next 5 years, after which you expect the growth rate to level off to 7% per year forever. The current company has 280 million in PP&E and 200 million in net working capital. You expect the operating margins to be 25 percent with the tax rate of 24 percent. If the weighted average cost of capital of AppleBanana Inc. is 8.28 percent, the company is 1/3 debt and 2/3 equity, with one billion shares outstanding, the stock price should be _____. (Do not round intermediate calculations. Round your answer to two decimal places.)
The company is also interested in new investment opportunities which could generate more revenues in future. The analysts have suggested that company can generate enough funds after 10 years if it would deposit at least Rs.40, 00,000 today. For this purpose two financial institutions are highlighted by them which are offering maximum return in the market. Institution A is offering 14% interest rate semiannually while institution B is offering 13% quarterly. So there is need to calculate cash position of company after 10 years from these two alternatives to choose appropriate plan.
The white oak company's annual sales are 219 million van average of 9 days elapses between when a customer malls its payment and when the funds become usable by the firm. a. If the company could speed up the collection of funds by 2 days, what would be the increase in the firm’s average cash balance? b. Assuming that these additional funds can be invested in the marketable securities that yield 7 percent per year, determine the increase in white Oak’s annual (pretax) earnings
Perez Company is considering an investment of $20,957 that provides net cash flows of $6,900 annually for four years. (a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals. (b) The hurdle rate is 9%. Should the company invest in this project on the basis of internal rate of return? Complete this question by entering your answers in the tabs below. Required A Required B What is the internal rate of return of this investment? Present value factor Internal rate of return % Required A Required B
Smart Company is expecting temporary idle cash. Hence, it is considering investing in marketable securities. Assume that the fixed cost of selling marketable securities is P10 per transaction and the interest rate on marketable securities is 6% per year. The company estimates that it will make cash payments of P12,000,000 over a 1-month period. What is the average cash balance (rounded to the nearest peso)?
You are applying the Discounted Cash Flow Model on AppleBanana Inc. The current sales of the company is 1.8 billion and you think sales will grow at 13% every year over the next 5 years, after which you expect the growth rate to level off to 6% per year forever. The company current has 280 million in PP&E and 200 million in net working capital. You expect the operating margins to be 30 percent with the tax rate of 34 percent. If the weighted average cost of capital of AppleBanana Inc. is 9.35 percent, the company is 1/3 debt and 2/3 equity, with one billion shares outstanding, the stock price should be
Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. The tax rate is24 percent. What is the WACC? What are the implications of the firm’s decision to borrow? Please work on excel and show formulas
Please answer fast i give you upvote.
Shabbona Partners expects to have free cash flows of $38,950,000 next year, and free cash flows are expected to grow at a constant rate of 3% per year. If the firm's WACC is 9% per year, what is the value of Shabbona's operations?
Demo Inc. is expected to generate a free cash flow (FCF) of $8,715.00 million this year (FCF1 = $8,715.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF2 and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF4). Assume the firm has no nonoperating assets. If Demo Inc.'s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Demo Inc.? (Note: Round all intermediate calculations to two decimal places.) $156,455.46 million $26,304.04 million $207,691.99 million $187,746.55 million Demo Inc.'s debt has a market value of $117,342 million, and Demo Inc. has no preferred stock. If Demo Inc. has 600 million shares of common stock outstanding, what is Demo Inc.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $64.19 $71.71 $ 65.19 $195.57
Your consulting firm will produce cash flows of $145,000 this year, and you expect cash flows thereafter to keep pace with any increase in the general level of prices. The interest rate currently is 6.9%, and you anticipate inflation of about 2.9%. a. What is the present value of your firm's cash flows for years 1 through 5? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value $ Present value 279,013.75 b. How would your answer to (a) change if you anticipated no growth in cash flow? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

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