Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it undertakes the upgrade?

Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it undertakes the upgrade?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 3P: AFN Equation Refer to Problem 9-1. Return to the assumption that the company had 5 million in assets...

See similar textbooks

Similar questions

Question 2. Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it does not undertake the upgrade? *Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.
Question 3 Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it undertakes the upgrade?
Question 9 TEME is a manufacturer of toy construction equipment. If it pays out all of its earnings as dividends, it will have earnings of 0.3 million per quarter in perpetuity. Suppose that the discount rate, expressed as an effective annual rate (EAR), is 16%. TEME pays dividends quarterly. What is the value of TEME if it continues to pay out all of its earnings as dividends? Assume that the next dividend is paid one quarter from now. *Make sure to input the answer without any currency symbols, commas, and remove M as Million value. e.g. 6,000,000 = 6M, so the answer should be written as 6 1.875, 1, 2, 1.88 are all wrong awnsers
Which one is correct answer please confirm? QUESTION 39 Getrag expects its sales to increase 20% next year from its current level of $4.7 million. Getrag has current assets of $660,000, net fixed assets of $1.5 million, and current liabilities of $462,000. All assets are expected to grow proportionately with sales. If Getrag has a net profit margin of 10%, what additional financing will be needed to support the increase in sales? Getrag does not pay dividends. a. $339,600 b. No financing needed, surplus of $224,400 c. No financing needed, surplus of $524,400 d. $283,200
You have been given information on the cash flows for the next three years for AMG inc., a conglomerate. After growing at 10% a year for the next 3 years, the operating income is expected to grow 2.5% a year forever, after year 3. AMG will continue to generate the same return on capital it earned in the first 3 years in perpetuity. Estimate the terminal value at the end of year 3, if the cost of capital is 7.5%. Year 1: EBIT (1-t) = $100 Reinvestment = $80 FCFF = $20 Year 2: EBIT (1-t) = $110 Reinvestment = $88 FCFF = $22 Year 3: EBIT (1-t) = $121 Reinvestment = $96.80 FCFF = $24.20 Choices: A. $496.10 B. $1240.25 C. $1654.49 D. $1984.40 E. $2480.50
Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it undertakes the upgrade?
In year 1 your new business earns $25,000 in cash flow to shareholders. In year 2 your business yields $32,000 in cash flow to shareholders. The money comes in at the end of each year. The firm’s third year realizes cash flow 5% more than year 2. If the cost of capital of your business is 10%, and if the company reaches long-term growth by year 3 (at 5%), what is the present value of this business?
5.A corporation is considering the purchase of an interest in real estate syndication at a price of $75,000. In return, the syndication promises to pay $1,020 at the end of each month for the next 25 years (300 months). If purchased, what is the expected internal rate of return, compounded monthly? How much total cash would be received on the investment? How much is profit and how much is return of capital?
Question 3 You have been asked to value Best Bank, a publicly traded bank that generated $100 million in net income in the most recent year on a regulatory capital base of $1billion (you can assume that this is also the book value of equity) with one billion shares outstanding. Over the next three years, you expect net income to grow 10% a year and regulatory capital (and book equity) to increase 5% a year. a) Estimate the FCFE each year for the next three years. b) At the end of year 3, you expect the bank to be in stable growth, growing 3% a year, while maintaining the return on equity it generated in year 3. If the cost of equity is 8%, estimate the value of equity at the end of year 3 c) What is the intrinsic value of the equity per share?
Question 1. Company TYK forecasts that it will begin paying dividends seven years from now, at which point dividends are $1 per share. Thereafter, dividends are expected to grow at a constant rate of 6% per year. The discount rate for TYK is 10%. How much would you pay for one share in Company TYK? *Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.
Please answer parts 4 and 5. The chairman of Heller Industries told a meeting of financial analysts that he expects the firm’s earnings and dividends to double over the next 6 years. The firm’s current (that is, as of year 0) earnings and dividends per share are $9 and $3, respectively. Use Table I and Table II to answer the questions. Estimate the compound annual dividend growth rate over the 6-year period. Round FVIF value in intermediate calculation to three decimal places. Round your answer to the nearest whole number. % Forecast Heller’s earnings and dividends per share for each of the next 6 years, assuming that they grow at the rate determined in Part a. Use the growth rate rounded to the nearest whole percent. Round your answers to three decimal places. Year Dividend EPS 1 $ $ 2 $ $ 3 $ $ 4 $ $ 5 $ $ 6 $ $ Based on the constant growth dividend valuation model, determine the current value of a share of Heller Industries common stock…
Q. Western Lumber Company expects to have free cash flow in the coming year of $4.25mand is expected to grow at 4% per year thereafter. The company has an equity cost of10% and a debt cost of 6% and pays corporate tax at 30%. If the company maintains adebt-to-equity ratio of 0.50, what is the value of the interest tax shield? Please answer by providing step by step solution and explaining the whole process