Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Question
Chapter 22, Problem 2P
a
Summary Introduction
To compute:
Horizon value of unlevered operations
b
Summary Introduction
To compute:
Total value of unlevered operations
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Richter Manufacturing has a 10% unlevered cost of equity. Richter forecasts the following free cash flows (FCFs), which are expected to grow at a constant 3% rate after Year 3.
Year 1
Year 2
Year 3
FCF
$715
$750
$805
a. What is the horizon value of the unlevered operations?
b. What is the total value of unlevered operations at Year 0?
Misra Inc. forecasts a free cash flow of $55 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5.5% thereafter. If the weighted average
cost of capital (WACC) is 10.0% and the cost of equity is 15.0%, then what is the horizon, or continuing, value in millions att = 3?
a. $1,212
b. $1,083
O c. $1,186
O d. $1,148
O e. $1,289
You discover an investment costing $3,000 which has an expected total return of 15% pa, but a required return of only 11% pa. Of the 15% pa total expected return, the capital return is expected to be 8% pa. Assume that the required return of 11% remains constant, the dividends can only be re-invested at 11% pa and all returns are given as effective annual rates.
Which of the following statements is NOT correct?
a.
When plotted on the Security Market Line, the investment would have a positive alpha.
b.
You would use a discount rate of 11% to find the NPV of this investment
c.
The expected dividend return is 7%
d.
The investment’s price at time t=20 would be $49,099.61
e.
The investment is currently under-priced
Chapter 22 Solutions
Financial Management: Theory & Practice
Ch. 22 - Prob. 1QCh. 22 - Prob. 2QCh. 22 - Prob. 3QCh. 22 - Prob. 4QCh. 22 - Prob. 5QCh. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Prob. 3PCh. 22 - Hasting Corporation is interested in acquiring...Ch. 22 - Prob. 5P
Ch. 22 - Prob. 6PCh. 22 - Prob. 7SPCh. 22 - Prob. 1MCCh. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Hager’s Home Repair Company, a regional hardware...Ch. 22 - Prob. 5MCCh. 22 - Prob. 6MCCh. 22 - Prob. 7MCCh. 22 - Prob. 8MCCh. 22 - Prob. 9MCCh. 22 - Prob. 10MCCh. 22 - Prob. 11MCCh. 22 - Prob. 12MC
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