You have been asked to estimate the value of General Communications, a telecomm firm.General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-taxcost of debt of 7.5%. The firm had earnings before interest and taxes of $ 600 million in2020 (fiscal year end is March 31, 2020), kfter depreciation charges of $300 million. Thefirm had capital expenditures of $360 million, and non-cash working capital increased by$50 million during 2016. The firm also had a book value of capital of $ 2 billion at thebeginning of 2019 fiscal year.3.(The Treasury bond rate is 5%, the market risk premium is 6.3% and the firm has a tax rateof 40%). Assuming that the firm is in stable growth, and that the return on capital andreinvestment rates from 2019 can be sustained forever.Estimate the value of the firm at the beginning of 2020 fiscal year.

Calculating operating free cash flow:

Answered: You have been asked to estimate 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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Puckett Products is planning for $3 million in capital expenditures next year. Puckett's target capital structure consists of 60% debt and 40% equity. If net income next year is $2 million and Puckett follows a residual distribution policy with all distributions as dividends, what will be its dividend payout ratio? Round your answer to two decimal places.
Tool Manufacturing has an expected EBIT of $81,000 in perpetuity and a tax rate of 24 percent. The firm has $230,000 in outstanding debt at an interest rate of 5.1 percent, and its unlevered cost of capital is 10.9 percent. What is the value of the firm according to M&M Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm
For 2022, You're Doing Great Corporation reported $22 million in sales and $19 million In operating costs Cincluding depreciation). The company has $15 million of total invested capital. Its after-tax cost of Capital is 10%, and its tax rate is 25%. What was the firm's economic value added (EVA) during 2022?
Kielly Machines Inc. is planning an expansion program estimated to cost $100 million. Kielly is going to raise funds according to its target capital structure shown below. Debt 0.30 Preferred stock 0.24 Equity 0.46 Kielly had net income available to common shareholders of $184 million last year of which 75% was paid out in dividends. The company has a marginal tax rate of 40%. Additional data: The before-tax cost of debt is estimated to be 11%. The market yield of preferred stock is estimated to be 12%. The after-tax cost of common stock is estimated to be 16% What is Kielly's weighted average cost of capital? Select one: a. 14.00% b. 12.22% c. 13.54% d. 13.00%
Lester's has expected earnings before interest and taxes of $57,800, an unlevered cost of capital of 10.2 percent, and debt with both a book and face value of $84,000. The debt has a coupon rate of 8.35 percent and the tax rate is 21 percent. What is the value of this company? $376,544 $596,973 $648,293 $456,666 O $389,304
Kahn Inc. has a target capital structure of 40% common equity and 60% debt to fund its $8 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 11%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $26. a. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % b. If the firm's net income is expected to be $1.6 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate (1-Payout ratio)ROE %
Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt, preferred stock, and common equity. The firm has a target of 40% debt financing and 15% preferred stock financing with the remainder of funds being raised from common equity. The after-tax cost of preferred stock has been estimated to be 4.4% while the after-tax cost of long-term debt has been estimated to be 5.2%. Due to its riskiness, the after-tax cost of equity has been estimated at a much higher rate of 12.8%. Estimate the firm’s WACC. Assume a tax rate of 40%.

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