Paragraph Styles 1 2 I 3 4 5 6 7 risk of those cash flows Example A firm is expected to generate net CFs of $5,000 in Year 1, $2,000 for each of the next 5 years. The firm can be sold for $10,000 in Year 7. The owners expect a 10% return. What is the value of the firm? Second, suppose you could buy the firm today for $12,000. Should you acquire it? W
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- Begin with the partial model in the file Ch02 P21 Build a Model.xlsx on the textbooks Web site. a. Using the financial statements shown here for Lan Chen Technologies, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for 2020. The federal-plus-state tax rate is 25%. b. Assume there were 15 million shares outstanding at the end of 2019, the year-end closing stock price was 65 per share, and the after-tax cost of capital was 10%. Calculate EVA and MVA for 2020. Lan Chen Technologies: Income Statements for Year Ending December 31 (Millions of Dollars) Lan Chen Technologies: December 31 Balance Sheets (Thousands of Dollars)Start with the partial model in the file Ch07 P27 Build a Model.xlsx on the textbook’s Web site. Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50, and its stock has a required return of 11%. What is Hamilton’s estimated stock price today? If you bought the stock at Year 0, what are your expected dividend yield and capital gains for the upcoming year? What are your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?Start with the partial model in Ch07 P26 Build a Model.xlsx on the textbook’s Web site. Traver-Dunlap Corporation has a 15% weighted average cost of capital (WACC). Its most recent sales were $980 million, and its total net operating capital is $970 million. The following table shows estimates of the forecasted growth rates, operating profitability ratios, and capital requirement ratios for the next three years. All of these ratios are expected to remain constant after the third year. Use this information to answer the following questions:a. Use the data to forecast sales, net operating profit after taxes (NOPAT), total net operating capital (OpCap), free cash flow (FCF), growth rate in FCF, and return on invested capital (ROIC) for the next 3 years. What is the FCF growth rate for Year 3, and how does it compare with the growth rate in sales? What is the ROIC for Year 3 and how does it compare with the 15% WACC?b. What is the value of operations at Year 3, Vop,3? What is the current…
- Start with the partial model in Ch07 P26 Build a Model.xlsx on the textbook’s Web site. Traver-Dunlap Corporation has a 15% weighted average cost of capital (WACC). Its most recent sales were $980 million, and its total net operating capital is $970 million. The following table shows estimates of the forecasted growth rates, operating profitability ratios, and capital requirement ratios for the next three years. All of these ratios are expected to remain constant after the third year. Use this information to answer the following questions: Estimated Base Case Data for Traver-Dunlap CorporationForecast Year1 2 3Annual sales growth rate 20% 6% 6%Operating profitability (NOPAT/Sales) 12% 10% 10%Capital requirement (OpCap/Sales) 80% 80% 80%Tax rate 35% 35% 35% Return the growth rates to the original values. Now suppose that the capital requirement ratio can be decreased to 60% for all three years and thereafter. What is the new value of operations? Did it go up or down relative to the…All parts are under 1 questions and per your policy you can answer all parts to 1 question. 11. More on the corporate valuation model Qwerty Logistics Corp. is expected to generate a free cash flow (FCF) of $9,420.00 million this year (FCF₁ = $9,420.00 million), and the FCF is expected to grow at a rate of 20.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. A. If Qwerty Logistics Corp.’s weighted average cost of capital (WACC) is 7.38%, what is the current total firm value of Qwerty Logistics Corp.? (Note: Round all intermediate calculations to two decimal places.) $310,202.70 million $29,584.83 million $313,016.94 million $258,502.25 million B. Qwerty Logistics Corp.’s debt has a market value of $193,877 million, and Qwerty Logistics Corp. has no preferred stock. If…11. More on the corporate valuation model Praxis Corp. is expected to generate a free cash flow (FCF) of $2,285.00 million this year (FCF₁ = $2,285.00 million), and the FCF is expected to grow at a rate of 23.80% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.54% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Praxis Corp.’s weighted average cost of capital (WACC) is 10.62%, what is the current total firm value of Praxis Corp.? (Note: Round all intermediate calculations to two decimal places.) a. $58,180.09 million b. $6,964.55 million c. $53,760.19 million d. $44,800.16 million Praxis Corp.’s debt has a market value of $33,600 million, and Praxis Corp. has no preferred stock. If Praxis Corp. has 150 million shares of common stock outstanding, what is Praxis Corp.’s estimated intrinsic value per share of common stock?…
- 11. More on the corporate valuation model Omni Consumer Products Co. is expected to generate a free cash flow (FCF) of $9,050.00 million this year (FCF₁ = $9,050.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Omni Consumer Products Co.’s weighted average cost of capital (WACC) is 8.46%, what is the current total firm value of Omni Consumer Products Co.? (Note: Round all intermediate calculations to two decimal places.) $28,137.56 million $262,460.16 million $271,293.23 million $218,716.80 million Omni Consumer Products Co.’s debt has a market value of $164,038 million, and Omni Consumer Products Co. has no preferred stock. If Omni Consumer Products Co. has 675 million shares of common stock outstanding, what is…Q1/ Ipswich Corporation is considering an investment opportunity with the expected net cash inflows of $300,000 for four years. The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment?65.) Suppose Buyson Corporation’s projected free cash flow for next year is FCF1 = P150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5%, what is the firm’s total corporate value?Group of answer choices P3,150,000 P2,572,125P2,707,500 P2,850,000 P3,000,000
- **Solve in Excel Question 5&6** Chen Chocolate Company’s EPS in 2020 was $1.80, and in 2015 it was $1.25. The company’s payout ratio is 60%, and the stock is currently valued at $37.75. Flotation costs for new equity will be 12%. Net income in 2021 is expected to be $20 million. The company investment banker estimates that it could sell 15-year semiannual bonds with a coupon of 6.5%. The face value would be $1,000 and the flotation costs for a bond issue would be 1%. The market-value weights of the firm’s debt and equity are 30% and 70%, respectively. The firm faces a 25% tax rate. 1.Based on the five-year track record, what is Chen’s EPS growth rate? What will the dividend be in 2021?2.Calculate the firm’s cost of retained earnings and the cost of new common equity. 3.Calculate the break-point associated with retained earnings. 4.What is the firm’s after-tax cost of new debt? 5.What is the firm’s WACC with retained earnings? With new common equity? 6.Create a scatter chart that…fin320 (Capital structure analysis)The Karson Transport Company currently has net operating income of $494,000 and pays interest expense of $194,000. The company plans to borrow $1.05 million on which the firm will pay 12 percent interest. The borrowed money will be used to finance an ivestment that is expected to increase the firm's net operating income by $397,000 a year. What is Karson's times interest earned ratio before the loan is taken out and the investment is made? The times interest earned ratio is ___times. (Round to two decimal places.) What effect will the loan and the investment have on the firm's times interest earned ratio? The new times interest earned ratio ___times. (Round to two decimal places.)HI5002 FINANCE FOR BUSINESS Question 2 You have $50,000 saving and are considering a 30-year investment which is offered in two phases: Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly. Phase 2: At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years. Required: a) Identify which option should you choose in Phase 1 by computing the effective annual interest rate (EAR)? b) Calculate the amount of money you would accumulate in Phase 1 after 20 years if you choose Option A? c) If you would like to have exactly $600,000 after 20 years, how much the…
