tively. Operating assets are estimated at 80% and 70% respecti et cash flows Net cash flows apital Corp. 000,000 800,000 680,000 0,648,000 1,712,800 Earn, Inc. 9,600,000 10,560,000 11,616,000 12,777,000 14,055,360 6%
tively. Operating assets are estimated at 80% and 70% respecti et cash flows Net cash flows apital Corp. 000,000 800,000 680,000 0,648,000 1,712,800 Earn, Inc. 9,600,000 10,560,000 11,616,000 12,777,000 14,055,360 6%
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 2MAD
Related questions
Question
100%
![Use the following information for numbers 23 to 25:
Corporate Valuators, Inc. is assessing the value of two companies, Capital Corp. and Earm, Inc. which projects the following
net cash flows in the next five years, with its desired required rate of return. Net cash flows approximate to be its earnings
also. The balance sheet of Capital Corp. and Eam, Inc. has recorded Property, Plant and Equipment of P100 million and
P200 million, respectively. Operating assets are estimated at 80% and 70% respectively and the rest are considered idle.
Capital Corp.
8,000,000
8,800,000
9,680,000
10,648,000
11,712,800
Required return 8%
Net cash flows Net cash flows
Earn, Inc.
9,600,000
10,560,000
11,616,000
12,777,000
14,055,3
6%
Year
1
2
3
4
23. Using capitalization of earnings, compute for the equity value of Capital Corp.
24. Using capitalization of earnings, compute for the equity value of Eam, Inc.
25. Which company has higher equity value?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89e741c7-34d4-4545-a78a-053171d2c5b9%2Fe7199715-cf86-4c56-bd00-a244bb8e67c9%2Fnc4jef_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Use the following information for numbers 23 to 25:
Corporate Valuators, Inc. is assessing the value of two companies, Capital Corp. and Earm, Inc. which projects the following
net cash flows in the next five years, with its desired required rate of return. Net cash flows approximate to be its earnings
also. The balance sheet of Capital Corp. and Eam, Inc. has recorded Property, Plant and Equipment of P100 million and
P200 million, respectively. Operating assets are estimated at 80% and 70% respectively and the rest are considered idle.
Capital Corp.
8,000,000
8,800,000
9,680,000
10,648,000
11,712,800
Required return 8%
Net cash flows Net cash flows
Earn, Inc.
9,600,000
10,560,000
11,616,000
12,777,000
14,055,3
6%
Year
1
2
3
4
23. Using capitalization of earnings, compute for the equity value of Capital Corp.
24. Using capitalization of earnings, compute for the equity value of Eam, Inc.
25. Which company has higher equity value?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Financial And Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
![Financial And Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Cornerstones of Financial Accounting](https://www.bartleby.com/isbn_cover_images/9781337690881/9781337690881_smallCoverImage.gif)
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning