Horizon value at year 4

Question

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Answer 1

Question

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

b.

Summary Introduction

To calculate:

Current unlevered value of operations

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

d.

Summary Introduction

To calculate:

Current value of tax shield

e.

Summary Introduction

To calculate:

Current total value

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Start with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions. INPUTS (In Millions) Projected Year: 1 2 3 4 Free cash flow $200 $280 $320 $340 Interest expense $100 $120 $120 $140 Calculate the current value of unlevered operations. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow). Calculate the current value of the tax shield. Calculate the current total value.

Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde’s tax rate is 25%. Year 1 Year 2 Year 3 Interest Expenses $80 $100 $120 a. What is the horizon value of the interest tax shield? b. What is the total value of the interest tax shield at Year 0?

A company forecasts free cash flow of $400 at Year 1 and $600at Year 2; after Year 2, the FCF grow at a constant rate of 5%.The company forecasts the tax savings from interest deductionsas $200 in Year 1, $100 in Year 2; after Year 2, the tax savingsgrow at a constant rate of 5%. The unlevered cost of equityis 9%. What is the horizon value of operations at Year 2?($15,750.0) What is the current unlevered value of operations?($14,128.4) What is the horizon value of the tax shield at Year 2?($2,625.0) What is the current value of the tax shield? ($2,477.1)What is the levered value of operations at Year 0? ($16,605.5)

Answer 2

Question

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

b.

Summary Introduction

To calculate:

Current unlevered value of operations

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

d.

Summary Introduction

To calculate:

Current value of tax shield

e.

Summary Introduction

To calculate:

Current total value

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

b.

Summary Introduction

To calculate:

Current unlevered value of operations

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

d.

Summary Introduction

To calculate:

Current value of tax shield

e.

Summary Introduction

To calculate:

Current total value

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

b.

Summary Introduction

To calculate:

Current unlevered value of operations

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

d.

Summary Introduction

To calculate:

Current value of tax shield

e.

Summary Introduction

To calculate:

Current total value

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

b.

Summary Introduction

To calculate:

Current unlevered value of operations

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

d.

Summary Introduction

To calculate:

Current value of tax shield

e.

Summary Introduction

To calculate:

Current total value

Answer 6

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

Answer 7

Chapter 21, Problem 10SP

a.

Summary Introduction

To calculate:

Horizon value at year 4

Answer 8

b.

Summary Introduction

To calculate:

Current unlevered value of operations

Answer 9

b.

Summary Introduction

To calculate:

Current unlevered value of operations

Answer 10

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

Answer 11

c.

Summary Introduction

To calculate:

Horizon value of tax shield at year 3

Answer 12

d.

Summary Introduction

To calculate:

Current value of tax shield

Answer 13

d.

Summary Introduction

To calculate:

Current value of tax shield

Answer 14

e.

Summary Introduction

To calculate:

Current total value

Answer 15

e.

Summary Introduction

To calculate:

Current total value

Answer 16

Expert Solution & Answer

Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. 21 - Prob. 1Q Ch. 21 - Modigliani and Miller assumed that firms do not...Ch. 21 - An unlevered firm has a value of $500 million. An...Ch. 21 - An unlevered firm has a value of $500 million. An...Ch. 21 - Prob. 3P Ch. 21 - Prob. 4P Ch. 21 - A company’s most recent free cash flow to equity...Ch. 21 - Air Tampa has just been incorporated, and its...Ch. 21 - Companies U and L are identical in every respect...Ch. 21 - Schwarzentraub Corporation’s expected free cash...

Horizon value at year 4

Solution Summary: The author explains how to calculate the horizon value of unlevered operations at year 4 and calculates the current value.

Videos

To calculate:

Horizon value at year 4

To calculate:

Current unlevered value of operations

To calculate:

Horizon value of tax shield at year 3

To calculate:

Current value of tax shield

To calculate:

Current total value

Want to see the full answer?

Chapter 21 Solutions

Horizon value at year 4

Solution Summary: The author explains how to calculate the horizon value of unlevered operations at year 4 and calculates the current value.

Videos

To calculate: Horizon value at year 4

To calculate: Current unlevered value of operations

To calculate: Horizon value of tax shield at year 3

To calculate: Current value of tax shield

To calculate: Current total value

Want to see the full answer?

Chapter 21 Solutions

To calculate:

Horizon value at year 4

To calculate:

Current unlevered value of operations

To calculate:

Horizon value of tax shield at year 3

To calculate:

Current value of tax shield

To calculate:

Current total value