Consider the case of Morose Otter Hydraulic Manufacturers Inc.:Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at arate of 18% over the following two years (FCF2 and FCF3). After the third year, however, the company's FCFS are expected to grow at a constant rateof 8% per year, which will last forever (FCF4 - ). If Morose Otter's weighted average cost of capital (WACC) is 16%, complete the following table andcompute the current value of Morose Otter's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not haveany nonoperating assets in its balance sheet and that all FCFS occur at the end of each year.YearCFPV(FCF,)FCF1$181,034 V$184,156 ▼$210,000FCF2$247,800$292,404 V$315,796 ▼$3,157,960 vFCF3$187,331FCF4Horizon Value4- 00$2,180,141 ▼$3,081,485 ▼Vop

MOROS OTTER HYDRAULIC MANUFACTURERS INC C D E F Year Cash flow PVIF Present value 6…

Answered: Consider the case of Morose Otter…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

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Consider the case of Morose Otter Hydraulic Manufacturers Inc.: Morose Otter Hydraulic Manufacturers Inc. is expected to generate a free cash flow (FCF) of $210,000 this year, and the FCF is expected to grow at a rate of 18% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 8% per year, which will last forever (FCF4 - ∞4 - ∞). If Morose Otter’s weighted average cost of capital (WACC) is 16%, complete the following table and compute the current value of Morose Otter’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $210,000 $181,034 FCF22 $247,800 $184,156 FCF33 $292,404 $187,331 FCF44 $315,796 Horizon Value4- ∞4- ∞ $3,157,960 $2,180,141 Vopop = $3,081,485…
Consider the case of Flying Cow Aviation Inc.: Flying Cow Aviation Inc. is expected to generate a free cash flow (FCF) of $1,180,000 this year, and the FCF is expected to grow at a rate of 14% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 6% per year, which will last forever (FCF4 - ∞4 - ∞). If Flying Cow’s weighted average cost of capital (WACC) is 12%, complete the following table and compute the current value of Flying Cow’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $1,180,000 FCF22 FCF33 FCF44 Horizon Value4- ∞4- ∞ Vopop = Flying Cow’s debt has a market value of $16,875,959, and Flying Cow has no preferred stock in its…
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