Year 1 2 3 4 Free cash flow $30 million $35 million $40 million $45 million General Industries is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 13% and General has cash of $100 million, debt of $80 million, and 50 million shares outstanding, what is General's expected current share price? a. $7.62 b. $7.87 C. $8.27 d. $8.42

Year 1 2 3 4 Free cash flow $30 million $35 million $40 million $45 million General Industries is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 13% and General has cash of $100 million, debt of $80 million, and 50 million shares outstanding, what is General's expected current share price? a. $7.62 b. $7.87 C. $8.27 d. $8.42

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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QUESTION 4A Black Gold Ltd. currently has the following capital structure: Debt funding: A callable bond that pays annually 10.5% coupon rate with an annual before-tax yield to maturity of 9.7%. The bond issue has face value of $1,000 and will mature in 16 years. Ordinary equity funding: An ordinary share that just paid a $6.50 dividend per share in the current financial year. The firm is maintaining 4.5% annual growth rate in dividend, which is expected to continue indefinitely. Hybrid - funding: A preferred share with face value of $100, paying fixed dividend rate of 15%. Required: a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 11.5%? c) Calculate the current value of the preferred share if the average return of the preferred shares in the same industry is 12.5%?*
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25 - For 2023, Volant Inc. is forecast to have Free Cash Flow to the Firm of $1.7 million and Free Cash Flow to Common Equity of $1.3 million. You forecast Free Cash Flow to the Firm to grow at a constant rate of 3.50% while Free Cash Flow to Common Equity grows at 4.00%. Volant’s tax rate is forecast to be 25%. You also collect the data shown below. Book Value Market Value Debt $14.5 million $15.0 million YTM: 4.24% Common Equity $21.0 million $45.0 million Rate of Return: 7.00% Calculate Volant’s Weighted Average Cost of Capital and round to 1 basis point. WACC:
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Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. Year 1 2 3 4 5 FCF -$22.39 $38.8 $44 $52.8 $56.5 The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.$ per share
Chapter 7 Homework Problems t han KE CK Enterprises has the folowing expected dividends $1 06 in one year, $1 18 in two years, and $1.31 in three years. After that, is dividends are expected to grow at 43% per year forever (so that year s dividend will be 4.3% more than $1 31 and so on) CXS eaty cost of capital is 12 2%, what is the current price of its stock?
Question 3 You have been asked to value Best Bank, a publicly traded bank that generated $100 million in net income in the most recent year on a regulatory capital base of $1billion (you can assume that this is also the book value of equity) with one billion shares outstanding. Over the next three years, you expect net income to grow 10% a year and regulatory capital (and book equity) to increase 5% a year. a) Estimate the FCFE each year for the next three years. b) At the end of year 3, you expect the bank to be in stable growth, growing 3% a year, while maintaining the return on equity it generated in year 3. If the cost of equity is 8%, estimate the value of equity at the end of year 3 c) What is the intrinsic value of the equity per share?
WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $10 million in new projects. The firm's present market value capital structure, here below, is considered to be optimal. There is no short-term debt. Debt Common equity Total capital $30,000,000 30,000,000 $60,000,000 New bonds will have a 6% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 25%. a. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Round your answer to the nearest dollar. $ b. Assuming there is sufficient cash flow for Tysseland to maintain its target capital…
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