Compute the value of a firm with free cash flows of $1,000, $2,500, and $3,000 over the next three years, a terminal firm value of $40,000 after three years, and the unlevered cost of capital is 15%. Assume that the interest rate tax shield is zero. O a. $26,191 O b. $27,234 O c. $31,033 O d. $39,343

Compute the value of a firm with free cash flows of $1,000, $2,500, and $3,000 over the next three years, a terminal firm value of $40,000 after three years, and the unlevered cost of capital is 15%. Assume that the interest rate tax shield is zero. O a. $26,191 O b. $27,234 O c. $31,033 O d. $39,343

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
Compute the value of a firm with free cash flows of $4000, $5000, and $6000 over the next three years; a terminal value of $70,000 after three years; and an unlevered cost of capital of 10%. Assume that the interest rate tax shield is zero. a. $17,058 b. $17,536 c. $58,107 d. $60,087 e. $64,869
A firm has the following investing alternative: Cash Inflows Year A B C 1 $1,100 $3,600 -- 2 1,100 -- -- 3 1,100 -- $4,562 Each investment costs $3,000; investments B and C are mutually exclu- sive, and the firm’s cost of capital is 8 percent. a. What is the net present value of each investment? b. According to the net present values, which investment(s) should the firm make? Why? c. What is the internal rate of return on each investment? d. According to the internal rates of return, which investment(s) should the firm make? Why? e. According to both the net present values and internal rates of return, which…
Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow (FCF) for next year is $750,000, and FCF is expected to grow at a constant rate of 4% indefinitely. If the company’s weighted average cost of capital is 10%, what is the value of its operations? a. $18,750,000 b. $12,500,000 c. $7,500,000 d. $13,000,000 e. $10,833,333
A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,000 1,400 1,800 B $1,700 1,700 1,700 If the firm can earn 6 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.PV(Investment A): $ __________PV(Investment B): $ __________ If each investment costs $4,000, is the present value of each investment greater than the cost of the investment? The present value of investment A is __less than___ / __greater than__ the cost. The present value of investment B is __less than___ / __greater than__ cost.
The firm forecasts a free cash flow of ₱ 41 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5% thereafter. If the weighted average cost of capital is 11% and the cost of equity is 15%, what is the horizon value, in millions at t = 3? a. ₱ 840 b. ₱ 717c. ₱ 883 d. ₱ 834
You expect ATM Corporation to generate the following free cash flows over the next five years: Year 1 2 3 4 5 FCF ($ millions) 75 84 96 111 120 Beginning with year six, you estimate that ATMʹs free cash flows will grow at 6% per year and that ATMʹs weighted average cost of capital is 15%. The enterprise value of ATM corporation is closest to: A. $1017.66 million B. $314.98 million C. $1413.33 million D. $702.67 million
A risky $ 1,000 investment is expected to generate the following cash flows: Year 1 2 3 $600 $600 $600 a. If the firm's cost capital is 10 percent, should the investment be made? b. An alternative use for the $1,000 is a three-year U.S. Treasury note that pays $50 annually and repays the $1,000 at maturity for an annual risk-free return of 5 percent. Management believes that the cash inflows from the risky investment are only equivalent to 70 percent of the certain investment. Does this information alter the decision in (a)?
Assume a firm has EBAT of $590,000, and no amortization. It is in a 40 percent tax bracket. a. Compute its cash flow. $ 354,000 b. Assume it has $590,000 in amortization. Recompute its cash flow. $ 590,000 c. How large a cash flow benefit did the amortization provide? $T] Cash flow Cash flow Benefit in cash flow
A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,500 1,900 2,200 B $1,400 1,400 1,400 If the firm can earn 6 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.PV(Investment A): $ PV(Investment B): $ If each investment costs $4,000, is the present value of each investment greater than the cost of the investment?The present value of investment A is -Select-less than greater than Item 3 the cost.The present value of investment B is -Select-less than greater than Item 4 the cost.
2. Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Option A Option B Product A Product B $190,000 $150,000 190,000 180,000 60,000 60,000 20,000 70,000 Payback Period for Option A = ? years. Payback Period for Option B = ? years. Round your Payback Period (PB) answer to two decimal places. (i.e. 12.34). Which of the two options would you choose based on the payback method. Option ? . Please note: Your answer is either "A" or "B" - capital letter, no quotes.
Gumtree Ltd will invest in an asset that is currently trading at $171,000. This is expected to generate a quarterly cash flow that grows at a constant rate of 6% p.a. compounded quarterly forever. The expected cost of capital is 10%p.a. compounded annually. How much would the first cash flow be from such an asset? Group of answer choices a. $1,107.52 b. $1,789.65 с. $1,558.44 d. $1,324.61 e. $1,961.37