Valuation Quiz Essay

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Question 1 Palm & Sun's (PS) free cash flows are expected to be $200 million next year and $488 million two years from now. After that, free cash flows are expected to grow at a constant rate of 3% per year forever. P&S’s WACC is 11%, its cost of equity is 14% and its cost of debt is 9.5%. They have $400 million of debt and $78 million in cash on their balance sheet. Use the discounted cash flow model to find P&S’s current equity value (rounded to the nearest million dollars). You Answered Correct Answer 5676 margin of error +/- 2 Question 2 Swamp & Sand Industries has the following data. The discount rate is 12%. Terminal value is 3 times FCF. Cash and debt are constant. Calculate its Enterprise…show more content…
You Answered Correct Answer 3364.5 margin of error +/- 2 FCF = EBIT -Taxes +Dep -/+Chg NMC -CapEx Question 5 Calculate the terminal value of the tax shield given the following information. Assume we are calculating it for the next year. The tax rate is 30%. Debt will be $1458 million. Assume debt grows at the same annual rate as the firm which is 7 %. The cost of debt is 4% while the cost of equity is 12%. You Answered Correct Answer 60 margin of error +/- 2 Question 6 Given the following data from Swamp & Sand Industries, calculate the net income (NI). The tax rate is 30%. Sales | 10875 | Cost of Sales | 4207 | SGA | 1232 | Depreciation | 1378 | Interest Expense | 798 | NWC | 635 | CapEx | 1174 | Dividends | 106 | Note SGA does not include depreciation. You Answered Correct Answer 2282 margin of error +/- 2 Revenue -Cost of Revenue - SGA - Depreciation - Interest Expense - Taxes = Net Income Question 7 At the end of 10 years, Grokster Investments plans to sell its interest in One City Tower, an office building in Miami, FL. In year 10 the building is expected to generate an annual cash flow of $170 million that is expected to grow at an annual rate 4% forever. The discount rate for projects such as this is 9%. Calculate the terminal value at the end of the 10th year. Do not discount it to the
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