What is the firm's value if cash flows are expected to grow at an annual rate of 12% for the first 2 years, followed by a constant annual rate of 7% from year 3 to infinity?
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On the basis of a review of similar-risk investment opportunites, you must earn a(n) 17%
from year 3 to infinity?
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- Free cash flow valuation You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $42,500 of free cash flow (FCF0 = $42,500). On the basis of a review of similar-risk invest-ment opportunities, you must earn an 18% rate of return on the proposed pur-chase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm’s value using several possible assumptions about the growth rate of cash flows. a. What is the firm’s value if cash flows are expected to grow at an annual rate of 0% from now to infinity?b. What is the firm’s value if cash flows are expected to grow at a constant annual rate of 7% from now to infinity?c. What is the firm’s value if cash flows are expected to grow at an annual rate of 12% for the first 2 years, followed by a constant annual rate of 7% from year 3 to infinityYou are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating$42,200of free cash flow(FCF 0 =$42, 200).On the basis of a review of similar-risk investment opportunites, you must earn a(n)18%rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm's value using several possible assumptions about the growth rate of cash flows. a. What is the firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity? b. What is the firm's value if cash flows are expected to grow at a constant annual rate of7%from now to infinity? c. What is the firm's value if cash flows are expected to grow at an annual rate of12%for the first 2 years, followed by a constant annual rate of 7%from year 3 to infinity?You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $41,200 of free cash flow (FCF0= $41,200). On the basis of a review of similar-risk investment opportunites, you must earn a(n)19% rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm's value using several possible assumptions about the growth rate of cash flows. a. What is the firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity? b. What is the firm's value if cash flows are expected to grow at a constant annual rate of 6% from now to infinity? c. What is the firm's value if cash flows are expected to grow at an annual rate of13% for the first 2 years, followed by a constant annual rate of 6% from year 3 to infinity?
- You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $41,300 of free cash flow (FCF0= $41,300). On the basis of a review of similar-risk investment opportunites, you must earn a(n) 20% rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm's value using several possible assumptions about the growth rate of cash flows. a. What is the firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity? b. What is the firm's value if cash flows are expected to grow at a constant annual rate of 8% from now to infinity? c. What is the firm's value if cash flows are expected to grow at an annual rate of 12% for the first 2 years, followed by a constant annual rate of 8%from year 3 to infinity?Free cash flow valuation Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 12 %, and it has $3,060,000 of debt at market value and $610,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 2020 through 2024, are given in the table. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6 % annually. Year (t) Free Cash Flow (FCF) 2020 $260,000 2021 $330,000 2022 $380,000 2023 $430,000 2024 $480,000 a. Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model. b.…Free cash flow valuation Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 15 %, and it has $ 1,670,000 of debt at market value and $ 330,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 2020 through 2024, are given in the table, Year (t) Free cash flow (FCF) 2020 $230,000 2021 $260,000 2022 $330,000 2023 $370,000 2024 $440,000 Beyond 2024 to infinity, the firm expects its free cash flow to grow by 5% annually. a. Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model. b. Use your finding in part a,…
- Free cash flow valuation Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firm's common stock value. The firm's CFO has gathered data for performing the valuation using the free cash flow valuation model. The firm's weighted average cost of capital is 13%, and it has $1,720,000 of debt at market value and $340,000 of preferred stock in terms of market value. The estimated free cash flows over the next 5 years, 1 through 5, 1 230,0002 270,0003 330,0004 360,0005 420,000After year 5, the firm expects its free cash flow to grow by 3% annually. a. Estimate the value of Nabor Industries' entire company by using the free cash flow valuation model. b. Use your finding in part a, along with the data provided above, to find Nabor Industries' common stock value. c. If…1) Smiley’s Manufacturing Company is considering the purchase of a small business, J&R Raw Material Limited. This company currently earns after-tax cash flow of 250,000 per year. On the basis of a review of similar risk investment opportunities, one must earn a 11% rate of return on the proposed purchase. Please answer the following questions: a. What is the firm’s value if the company’s after-tax cash flows are not expected to grow for the foreseeable future? b. What is the firm’s value if after-tax cash flows are expected to grow at an annual rate of 2.5% for the foreseeable future? c. What price should you pay for J&R Consulting Limited if the after-tax cash flows are not expected to grow for the first two years, but then in year 3 it is expected to grow by 3% and then from year 4 onwards it is expected to grow by a constant annual rate of 4%? d. Your friend, Jenny, is risk averse and is considering which between a government bond investment and the purchase of this…Jerome Bush used a discounted cash flow method and calculated firm values for Amazonia Forest Products (e.g., NPV of the free cash flows). In an effort to better qualify his assessment of the firm’s valuation, he plans to use scenario analysis techniques that he learned about in his MBA program. For the base or the most likely case, he found the NPV equaled $32,590. For the optimistic case, using more liberal assumptions, his NPV equaled $65,180. He projected a 30% probability for each of these possibilities. He also thought there was a 40% chance the firm would be worthless (NPV=0). Given these scenario specific values and probabilities, what would his scenario weighted valuation of Amazonia be?
- Relative valuation lecture: What happens if we apply a 20% discount for a private company when valuing Helix instead of the other discount used in the slides? Recall that the average EBITDA multiple for comparable firms is 10.48. If Helix anticipates earning $10 million in EBITDA this year (same as in the lecture), then we estimate the equity value of Helix to be what, using a private company discount of 20%? [Reminder: Helix has $2.4 million in cash and $21 million in interest bearing debt] Can someone explain the math please?2. State and graph the appropriate strategies to limit downside risk based on the expected market price performance of underlying asset.)i) (Bullish)ii) (Neutral to bullish)iii) (Bearish)iv) (Neutral to bearish)v) (Extreme volatility) b) Suppose you had just gone long 10 lot of Cerah Bhd stock at a price of RM 20.00 each, for a total investment of RM 20,000. 1 lot = 100 shares. You wish to protect yourself from any short term downside movement in price. Suppose 3-month, at-the-money put and call options on Cerah Bhd stock are being quoted at RM 0.20.)i) Identify the risk exposure you have in stock investment.)ii) (Outline the appropriate strategy to hedge your current position.) iii) (What is your risk profile for the selected strategy?) iv) (Graph the position of your strategy (label all axes/ points)) v) (Calculate the maximum possible loss, maximum profit and break-even point?))The three options' expected net present value (NPV) and profitability indexes (PI) has been calculated 1. Discuss which option(s) should be chosen for investment, assuming the company can invest surplus cash in the money market at 10% (Note: You should assume that the R50m expenditure limit is the absolute maximum the company wishes to spend). 2. Discuss whether the company's decision not to borrow, thereby limiting investment expenditure, is in the best interests of its shareholders.