INTERMEDIATE FINANCIAL MANAGEMENT
14th Edition
ISBN: 9780357516669
Author: Brigham
Publisher: CENGAGE L
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Textbook Question
Chapter 8, Problem 12P
Value of Operations
Kendra Enterprises has never paid a dividend.
- a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)
- b. Calculate the value of Kendra’s operations.
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Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively, after the second year, FCF is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is 12%.a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)b. Calculate the value of Kendra's operations.
Value of Operations
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 16%.
What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.
$
Calculate the value of Kendra's operations. Round your answer to the nearest cent. Do not round intermediate calculations.
$
Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-
operating assets. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue
growing at a 5.0% rate after Year 3. What is the firm's total corporate value (in millions)? Do not round
intermediate calculations.
2
Year 1
FCF -$15.00 $10.00 $60.00
$721.58
$459.71
$593.56
$634.29
$581.92
3
Chapter 8 Solutions
INTERMEDIATE FINANCIAL MANAGEMENT
Ch. 8 - Define each of the following terms: a. Proxy;...Ch. 8 - Two investors are evaluating General Electric’s...Ch. 8 - A bond that pays interest forever and has no...Ch. 8 - Explain how to use the free cash flow valuation...Ch. 8 - Thress Industries just paid a dividend of 1.50 a...Ch. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - A company currently pays a dividend of $2 per...Ch. 8 - Prob. 10PCh. 8 - Value of Operations
Kendra Enterprises has never...
Ch. 8 - Free Cash Flow Valuation
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