A firm’s current profits are P550,000. These profits are expected to grow indefinitely at a constant annual rate of 5 percent. If the firm’s opportunity cost of funds is 8 percent, determine the value of the firm: a. The instant before it pays out current profits as dividends: b. The instant after it pays out current profits as dividends.

A firm’s current profits are P550,000. These profits are expected to grow indefinitely at a constant annual rate of 5 percent. If the firm’s opportunity cost of funds is 8 percent, determine the value of the firm: a. The instant before it pays out current profits as dividends: b. The instant after it pays out current profits as dividends.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 1P: Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1...

See similar textbooks

Similar questions

Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
A firm's current profits are $700,000. These profits are expected to grow indefinitely at a constant annual rate of 3 percent. If the firm's opportunity cost of funds is 5 percent, determine the value of the firm: Instructions: Enter your responses rounded to two decimal places. a. The instant before it pays out current profits as dividends. million b. The instant after it pays out current profits as dividends. million
A firm's current profits are $450,000. These profits are expected to grow indefinitely at a constant annual rate of 3 percent. If the firm's opportunity cost of funds is 6 percent, determine the value of the firm: Instructions: Round your responses to 2 decimal places. a. The instant before it pays out current profits as dividends. $ million b. The instant after it pays out current profits as dividends. $ million
Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its earnings in dividends. Suppose the firm has an opportunity to invest $1,000 of next year's earnings to upgrade its machinery. It is expected that this upgrade will increase earnings in all future years (starting two years from now) by $140. Assume that Golf Ball's next dividend is one year from now. The required rate of return is 12%. What is the value of Golf Ball Inc. if it undertakes the upgrade?
's current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 2tunity cost of funds is 4 percent, determine the value of the firm:actions: Enter your responses rounded to one decimal place.instant before it pays out current profits as dividends. millione instant after it pays out current profits as dividends.million
If An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm's cost of capital is 10 percent? a. What is the investment's internal rate return? Based on the net present rate return, should the firm makeinvestment? b.What is the investment's net present value? Based on the net present value, should the firm make the investment?
A firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?
6) Holly plc expects to receive annual cash flows of £75,000 per year in current price terms for a period of five years. Annual inflation is expected to be 4 percent and the cost of capital of the company is 10 percent in nominal terms. What is the present value of the expected cash flows (to the nearest £1,000)? A) £318,000 B) £306,000 C) £375,000 D) £296,000
Consider a firm that expects to generate the following earnings stream over the next five years. The terminal value in Year 5 is based on a multiple of 15 times that year's earnings. Year 1 P50,000 Year 2 P60,000 Year 3 P65,000 Year 4 P70,000 Year 5 P750,000 (terminal value) Using a discount rate of 8%, what is the present value of the firm? What is the present value if the terminal value is based on 10 times Year 5 earnings?
An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm’s cost of capital is 10 percent. a.) What is the investment’s internal rate of return? Based on the internalrate of return, should the firm make the investment? b.) What is the investment’s net present value? Based on the net presentvalue, should the firm make the investment?
A certain company has expected next year earnings per share of $6. If the company wants to reinvest 60% of earnings into the firm, and the firm has an ROE of 10%. What is the current firm value if the firm has a required rate of return k=8%?
A company has two investment possibilities, with the following cash inflows: If the firm can earn 7 percent in other investments, what is the present value of investments A and B? If each investment costs $4,000, is the present value of each investment greater than the cost of the investment?