You forecast the future cash flow of Jaffe Ltd, a young growing company. You expect fast growth through the first four years, at which time the company will mature and you expect it to grow by 2% per year forever more after. The following are the forecast cash flows: Year 1: $5 million Year 2: $10 million Year 3: $15 million Year 4: $20 million Year 5: $20.4 million Year 6: $20.808 million Year 7 onward: continued growth at 2% per year The discount rate is 9%. What is the value of Jaffe today at Year 0? (Do not round intermediate calculations. Report your result in millions of dollars. Round the final answers to 2 decimal places. Omit $ sign and the word "million" in your response. For example, if your answer is $1,234,567 just write 1.23.) Numeric Response

You forecast the future cash flow of Jaffe Ltd, a young growing company. You expect fast growth through the first four years, at which time the company will mature and you expect it to grow by 2% per year forever more after. The following are the forecast cash flows: Year 1: $5 million Year 2: $10 million Year 3: $15 million Year 4: $20 million Year 5: $20.4 million Year 6: $20.808 million Year 7 onward: continued growth at 2% per year The discount rate is 9%. What is the value of Jaffe today at Year 0? (Do not round intermediate calculations. Report your result in millions of dollars. Round the final answers to 2 decimal places. Omit $ sign and the word "million" in your response. For example, if your answer is $1,234,567 just write 1.23.) Numeric Response

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 18P: Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts...

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Brook Corporation’s free cash flow for the current year (FCF0) was $3.00 million. Its investors require a 13% rate of return on (WACC = 13%). What is the estimated value of operations if investors expect FCF to grow at a constant annual rate of (1) −5%, (2) 0%, (3) 5%, or (4) 10%?
Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dozier’s weighted average cost of capital is WACC = 13%. What is Dozier’s horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) What is the current value of operations for Dozier? Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share?
Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site. Selected data for the Derby Corporation are shown here. Use the data to answer the following questions. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow). Assume growth becomes constant after Year 3. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations. Calculate the estimated Year-0 price per share of common equity.
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
You forecast the future cash flow of Jaffe Ltd, a young growing company. You expect fast growth through the first four years, at which time the company will mature and you expect it to grow by 2% per year forever more after. The following are the forecast cash flows: Year 1: $5 million Year 2: $10 million Year 3: $15 million Year 4: $20 million Year 5: $20.4 million Year 6: $20.808 million Year 7 onward: continued growth at 2% per year The discount rate is 9%. What is the value of Jaffe today at Year 0? (Do not round intermediate calculations. Report your result in millions of dollars. Round the final answers to 2 decimal places. Omit $ sign and the word “million” in your response. For example, if your answer is $1,234,567 just write 1.23.)
You forecast the future cash flow of Jaffe Ltd, a young growing company. You expect fast growth through the first four years, at which time the company will mature and you expect it to grow by 2% per year forever more after. The following are the forecast cash flows: Year 1: $5 million Year 2: $10 million Year 3: $15 million Year 4: $20 million Year 5: $20.4 million Year 6: $20.808 million Year 7 onward: continued growth at 2% per year The discount rate is 9%. What is the value of Jaffe today at Year 0?
The following are the projected cash flows to the firm over the next five years: Year Cash Flows to the Firm (Million) 1 $120 2 $145 3 $176 4 $199 5 $245 The firm has a cost of capital (WACC )of 12% and the cash flows are expected to grow at the rate of 4% in perpetuity? a) What is the value of the firm today? b) At what growth rate will the firm have a value of $3000 Million?
A company forecasts free cash flow in one year (i.e. FCF1) to be -$10 million and free cash flow in two years (i.e. FCF2) to be $20 million. After the second year, free cash flow will grow at a constant rate of 4 percent per year forever. If the WACC is 14 percent, what is the current value of operations (i.e., the present value of all future FCF)?
Suppose you are asked to value a small start-up company that is expected to generate a Free CashFlow of - $100 million next year, and - $50 million in the following year (year 2), before the firmturns profitable in year 3. Its first positive cash flow is equal to $2 million, and cash flows are expected to grow at a rate of 15% per year for 10 years (until year 13). Then, between year 13 and 14,the growth rate drops to 7% and stays there forever. Value the start-up company if the relevant discount rate is equal to 9%. My question is when calculating the perpetuity with a cosntant growth rate, why we muliply: 1/(1+r)^13 * E(CF_14)/0,09-0,07 Why does this make sense?
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The expected Cash Flow From Assets of The Skate Shop for the next two years are $208,000 and $218,000 respectively. After these two years, the growth rate of these cash flows will be a constant 4.7% per year.Assuming a discount rate of 9.7%, what is the present value of the terminal value of this firm?