Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134101446
Author: Berk, Jonathan; DeMarzo, Peter
Publisher: PEARSON
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Chapter 19, Problem 8P
Summary Introduction
To determine: The
Introduction:
Free cash flow indicates the amount of cash a firm has after spending on all capital expenditures. Free cash flow to equity indicates the amount available to the equity shareholders of a company after all the expenses.
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The free cash flows (in millions) shown below are forecast by Simmons Inc. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions? Year: 1 Free Cash Flow: -$20, Year 2 Free Cash Flow: $44, Year 3 Free Cah Flow: $47.
Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $37.42 million in Year 5, i.e., FCF at t = 5 equals $37.42 million, and the FCF growth rate is expected to be constant at 4.74% beyond that point. If the weighted average cost of capital is 11%, what is the horizon value (in millions) at t = 5?
A project requires an immediate cash outflow of £300 million in return for the following probable cash flows:
State of Economy
Probability of State of Economy
Year 1
£ in million
Year 2
£ in million
Recession
0.2
800
130
Growth
0.5
300
350
Boom
0.3
900
440
Assume that the state of economy will be the same in the second year as in the first. The required rate of return is 7%. There is no tax or inflation.
Required:
a- Calculate the expected NPV
b- Calculate the standard deviation of NPV
Chapter 19 Solutions
Corporate Finance, Student Value Edition (4th Edition)
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
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