Principles of Managerial Finance Custom Edition for Wilmington University, 4/e
4th Edition
ISBN: 9781323419571
Author: Gitman
Publisher: Pearson Education
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Chapter 7, Problem 7.15P
a.
Summary Introduction
To determine: The firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity.
b.
Summary Introduction
To determine: The firm's value if cash flows are expected to grow at a constant annual rate of 7% from now to infinity.
c.
Summary Introduction
To determine: 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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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 investment opportunities, you must earn a(n) 16%
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 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 infinity?
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 infinity
Free cash flow valuation You are evaluating the potential purchase of a small business with no debt or preferred stock that is currently generating $42,300 of free cash flow (FCF0=$42,300).On the basis of a review of similar-risk investment opportunites, you must earn a(n) 17% 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 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 infinity?
I just need answer C
Chapter 7 Solutions
Principles of Managerial Finance Custom Edition for Wilmington University, 4/e
Ch. 7.1 - What are the key differences between debt and...Ch. 7.2 - What risks do common stockholders take that other...Ch. 7.2 - Prob. 7.3RQCh. 7.2 - Explain the relationships among authorized shares,...Ch. 7.2 - Prob. 7.5RQCh. 7.2 - Prob. 7.6RQCh. 7.2 - Explain the cumulative feature of preferred stock....Ch. 7.2 - Prob. 7.8RQCh. 7.2 - Prob. 7.9RQCh. 7.2 - Prob. 7.10RQ
Ch. 7.2 - Prob. 7.11RQCh. 7.3 - Prob. 1FOECh. 7.3 - Describe the events that occur in an efficient...Ch. 7.3 - Prob. 7.13RQCh. 7.3 - Describe, compare, and contrast the following...Ch. 7.3 - Describe the free cash flow valuation model, and...Ch. 7.3 - Explain each of the three other approaches to...Ch. 7.4 - Prob. 7.17RQCh. 7.4 - Assuming that all other variables remain...Ch. 7 - Prob. 1ORCh. 7 - Prob. 7.1STPCh. 7 - Prob. 7.2STPCh. 7 - Prob. 7.1WUECh. 7 - Prob. 7.2WUECh. 7 - Prob. 7.3WUECh. 7 - Prob. 7.4WUECh. 7 - Prob. 7.5WUECh. 7 - Prob. 7.6WUECh. 7 - Authorized and available shares Aspin...Ch. 7 - Prob. 7.2PCh. 7 - Learning Goal 2 P7-3 Preferred dividends In each...Ch. 7 - Learning Goal 2 P7-4 Convertible preferred stock...Ch. 7 - Learning Goal 4 P7-5 Preferred stock valuation TXS...Ch. 7 - Prob. 7.6PCh. 7 - Preferred stock valuation Jones Design wishes to...Ch. 7 - Learning Goal 4 P7-8 Common stock value: Constant...Ch. 7 - Common stock value: Constant growth McCracken...Ch. 7 - Prob. 7.10PCh. 7 - Prob. 7.11PCh. 7 - Prob. 7.12PCh. 7 - Learning Goal 4 P7-14 Common stock value: Variable...Ch. 7 - Prob. 7.14PCh. 7 - Prob. 7.15PCh. 7 - Prob. 7.16PCh. 7 - Prob. 7.17PCh. 7 - Prob. 7.19PCh. 7 - Prob. 7.20PCh. 7 - Prob. 7.21PCh. 7 - Prob. 7.22PCh. 7 - Prob. 7.23PCh. 7 - Prob. 7.24P
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