A company has the following free cash flow forecasts (in millions):12tFCFFWählen Sie eine Antwort:A. 1011.07OB. 740.70OC. 669.97OD. 568.6330Die richtige Antwort ist: 740.7035340The company's cost of equity was calculated at 10.00% and its cost of debt at 5.00%. The company's debt-to-equity ratio is 60.00%. The applicable corporate tax rate is 30.00%. After the fourth year, the free cash flow to the firm is assumed togrow at 2.00% per year in perpetuity. What is the present value of the firm closest to?445

Calculation of present value of firm is based on the concept of time value of money. The value of a…

Answered: A company has the following free cash…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company has a required return of 12%, a profit margin of 4%, a D/E ratio of 0.5 and total asset turnover of 2. Annual dividends last year were $2.00. A) The company has a dividend payout ratio of 20%; calculate the price and forward P/E ratio. B) If the company would have changed its dividend payout ratio to 60%, what would happen to the price and forward P/E ratio? C) What variables are critical to determine if they should increase or decrease their dividend payout ratio? (Hint be specific what variables do you need to know.)
Reingaart Systems is expected to pay a $3.4 dividend at year end (D1 = $3.4), the dividend is expected to grow at a constant rate of 5.8% a year, and the common stock currently sells for $65 a share. The before-tax cost of debt is 7.8%, and the tax rate is 29%. The target capital structure consists of 56% debt and 44% common equity. What is the company's WACC if all equity is from retained earnings? O 8.55% O 7.65% O 7.95% O 7.35% 8.25%
Use the information for the question(s) below Flagstaff Enterprises is expected to havo free cash flow in the coming year of $8 milon, and this tree cash fow is expected fo grow at a rate of 3% per year thereafter. Flagstaff has an equity cost of capital of 13%, a dobt cost of capital of 7%, and it is in the 35% corporate tax brackot If Flagstatf currently maintains a 5 debt to equity ratio, then the value of Flagstaff as an all equity firm would be ciosest to O A. $115 million OB $80 milion OC. $73 milion OD $100 million
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $40.00 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company’s WACC if all the equity used is from retained earnings? Do not round your intermediate calculations. Group of answer choices 8.49% 6.96% 6.79% 6.45% 9.42%
Your firm has earnings of $3.75/share. Over 5-years earnings will increase to $9.00. What is the earnings growth rate? (Round to 1 10 the nearest percent.) A. 18.5% B. 19.1% C . 21.3% D. 15.7% For two years (24 months) you deposit $500 at the beginning of each month. After 2 years you $13,000 in your account. If the bank compounds interest monthly, what annual interest rate will you have earned (multiply the monthly rate by 12 to get the annual rate)? A. 8.00% B. 8.82% C . 8.40% D. 7.62%
PWC Inc. has a policy of distributing 30% of its current year income after interest and taxes. Which of the following statement is true in relation to this limited information? a. PWC Inc. has a 70% retention ratio b. PWC Inc. has a dividend yield of 70% c. 70% of the capital of PWC Inc. is funded by debt d. PWC Inc. has already satisfied its capital budget for the year. Which of the following is not a practical thing to consider in determining the company’s dividend policy? a. Legal restrictions b. Cash position c. Ownership control d. Prevailing interest rates
The Montana Hills Co. has expected earnings before interest and taxes of $17,100 forever, an unlevered cost of capital of 12.4 percent, and debt with both a book and face value of $25,000. The debt has an annual 6.2 percent coupon. If the tax rate is 21 percent, what is the value of the firm? $91,016 $137,903 $114,194 $106,667 $146,403
A company is financed with equity of $4.5 million and a bank loan of $2.5 million with an interest rate of 8.6% per annum. The EBIT is $1.12 million. The applicable tax rate is 19%. Use the above information to calculate the following: a) change in the return on equity and the degree of financial leverage given a 15% increase in EBIT next year, b) change in the return on equity and the degree of financial leverage given a 5% decrease in EBIT in the following year (the year following the year in which EBIT grew by 15%).
Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $87.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 25%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Do not round your intermediate calculations.
As the chief financial officer of Adirondack Designs, you have the following information: Next year’s expected net income after tax but before new financing $ 50 million Sinking-fund payments due next year on the existing debt $ 25 million Interest due next year on the existing debt $ 20 million Common stock price, per share $ 33.0 Common shares outstanding 30 million Company tax rate 30% Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $60 million of new debt at an interest rate of 4 percent. Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.5 million. Calculate next year’s earnings per share assuming Adirondack raises the $60 million of new debt. Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.5 million new shares at $23 a share instead of raising new debt. Note: Do not round intermediate…
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