FUNDAMENTALS OF CORPORATE FINANCE
10th Edition
ISBN: 9781260013962
Author: BREALEY
Publisher: RENT MCG
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Chapter 9, Problem 30QP
Summary Introduction
To determine: The impact on investment in NWC.
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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years.
Calculate the two projects' NPVs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent.
Calculate the two projects' PIs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to three decimal places.
Project L is not 1.07
Wilbur and Orville are brothers. They're both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the
dividend valuation model. Orville prefers the free cash flow to equity valuation model. As it turns out, right now, both of them are looking at the same stock-Wright
First Aerodynmaics, Inc. (WFA). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock-solid, dividend-paying stock.
The brothers have gathered the following information about WFA's stock:
Current dividend (D) = $2.30/share
Current free cash flow (FCF) = $1.5 million
Expected growth rate of dividends and cash flows (g) = 5%
Required rate of return (r) = 14%
Shares outstanding 500,000 shares
How would Wilbur and Orville each value this stock?
Company
P/S Multiples
Facebook
13.33
Snap
18.22
Twitter
13.27
Chapter 9 Solutions
FUNDAMENTALS OF CORPORATE FINANCE
Ch. 9 - Prob. 1QPCh. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 9QPCh. 9 - Prob. 10QPCh. 9 - Prob. 11QP
Ch. 9 - Prob. 12QPCh. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Prob. 19QPCh. 9 - Prob. 20QPCh. 9 - Prob. 21QPCh. 9 - Prob. 22QPCh. 9 - Prob. 23QPCh. 9 - Prob. 24QPCh. 9 - Prob. 25QPCh. 9 - Prob. 26QPCh. 9 - Prob. 27QPCh. 9 - Prob. 28QPCh. 9 - Prob. 29QPCh. 9 - Prob. 30QPCh. 9 - Prob. 32QP
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