Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $2.1 million. Its depreciation and capital expenditures will both be $296,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $50,000 over the next year. Its tax rate is 22%. If its WACC is 8% and its FCFs are expected to increase at 5% per year in perpetuity, what is its enterprise value?

Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $2.1 million. Its depreciation and capital expenditures will both be $296,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $50,000 over the next year. Its tax rate is 22%. If its WACC is 8% and its FCFs are expected to increase at 5% per year in perpetuity, what is its enterprise value?

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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1. Atty. Munar invested P280, 000 which will be used in a project that will produce a uniform annual revenue of P180,000 for 5 years and then have a salvage value of 15% of the investment. Out-of-pocket costs for operation and maintenance will be P80,000 per year. Taxes and insurance will 3% of the first cost per year. Atty Munar expects capital to earn not less than 30% before income taxes. Is this a desirable investment? What is the payback period of the investment?(a) Calculate using Rate of Return Method.(b) Calculate using Present Worth Method.(c) Calculate using Future Worth Method.(d) Calculate using Payback Method.
The capital structure weights of Kala Ghoda is .55 and the tax rate is 39 percent. The cash flows of Kala Ghoda will be $1.55 million per year for 7 years and the cost of debt is 5.46 percent. What is the NPV if it's equity costs 11.17 percent and the project's cost is $7.5 million?
Chase Brew Inc is considering an investment with the following information: initial investment in assets = $1,600,000 to be depreciated to $0 via straight-line method over 8-year project life sales will increase by $1,750,000/year expenses will increase by $1,240,000/year firm's marginal tax rate is 28% What is the incremental after-tax cash flow (OCF) per year associated with the following project? Enter answer in dollars, rounded to the nearest dollar.
Suppose a new machine costs $100,000 and will provide nominal operating income of $50,000 in each of the next four years. The machine belongs to asset class 9, which has a CCA rate of 30%. The machine is expected to be sold for $25,000 at the end of four years. The real discount rate has been estimated to be 8% per year. Expected inflation is 2.5% over the next four years. The firm's marginal tax rate is 38%. Assume there are other assets in the asset class when the machine is sold and that the half-year rule applies in year one. What is the NPV of the project? A $44,427.84 B $107,358.25 © $35,435.82 (D) $94,761.86
The Melbo Foundation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are R850,000 per year and cost of sales are 55% of sales. The equipment is expected to last for 5 years with no residual value (tax allowance granted is at 20% per year). The capex/ cost of equipment R257 500. The corporate tax rate is 28%. Calculate the estimated annual tax payment increase/decrease? R2,065 decrease R12,355 increase R12,075 decrease R2,625 increase
The Podrasky Corporation is considering a $250 million expansion (capital expenditure) program next year. The company currently has $400 million in net fixed assets on its books. Next year, the company expects to earn $70 million after interest and taxes. The company also expects to maintain its present level of dividends, which is $20 million. If the expansion program is accepted, the company expects its inventory and accounts receivable each to increase by approximately $25 million next year. Long-term debt retirement obligations total $9 million for next year, and depreciation is expected to be $75 million. The company does not expect to sell any fixed assets next year. The company maintains a cash balance of $5 million, which is sufficient for its present operations. If the expansion is accepted, the company feels it should increase its year-end cash balance to $7 million because of the increased level of activities. For planning purposes, assume no other cash flow changes for next…
Consider the case of Flying Cow Aviation Inc.: Flying Cow Aviation Inc. is expected to generate a free cash flow (FCF) of $1,180,000 this year, and the FCF is expected to grow at a rate of 14% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 6% per year, which will last forever (FCF4 - ∞4 - ∞). If Flying Cow’s weighted average cost of capital (WACC) is 12%, complete the following table and compute the current value of Flying Cow’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $1,180,000 FCF22 FCF33 FCF44 Horizon Value4- ∞4- ∞ Vopop = Flying Cow’s debt has a market value of $16,875,959, and Flying Cow has no preferred stock in its…
A new project will generate sales of $97 million, costs of $49 million, and depreciation expense of $10 million in the coming year. The firm's tax rate is 27%. Calculate cash flow for the year (you may use any of the three methods discussed in the chapter 9 -- if done correctly, they should all provide the same answer). (Answer in $ Million, e.g. 10.5 is $10.5 million)
Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for 4 years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is a. 12% b. 3% c. 10% d. 9%
Required: The MoMi Corporation's cash flow from operations before interest and taxes was $2.3 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 17% of pretax cash flow each year. The tax rate is 21%. Depreciation was $290,000 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 $5 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.) Value of the firm Value of the firm's equity
Globex Corp. is expected to generate a free cash flow (FCF) of $145.00 million this year (FCF₁ = $145.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF2 and FCF3). 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 Globex Corp.'s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Globex Corp.? (Note: Round all intermediate calculations to two decimal places.) O $2,603.11 million O $3,123.73 million O $437.64 million O $3,455.59 million Globex Corp.'s debt has a market value of $1,952 million, and Globex Corp. has no preferred stock. If Globex Corp. has 375 million shares of common stock outstanding, what is Globex Corp.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) O $1.74 O $0.74 $1.91
Allied Biscuit Co. is expected to generate a free cash flow (FCF) of $7,795.00 million this year (FCF, = $7,795.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years ( FCF, and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF). Assume the firm has no nonoperating assets. If Allied Biscuit Co.'s weighted average cost of capital (WACC) is 6.30 %, what is the current total firm value of Allied Biscuit Co. ? (Note: Round all intermediate calculations to two decimal places.) $293,072.74 million $ 24,732.03 million $297,760.66 million $248, 133.88 million

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