Derry Corporation is expected to have an EBIT of $2.1 million next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to De $165,000, $80,000, and $120,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $10.4 million in debt and 750,000 shares outstanding. You believe that in Year 5 sales will be $23.7 million and he appropriate price-sales ratio is 2.9. The company's WACC is 8.5 percent and the tax ate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price

Derry Corporation is expected to have an EBIT of $2.1 million next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to De $165,000, $80,000, and $120,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $10.4 million in debt and 750,000 shares outstanding. You believe that in Year 5 sales will be $23.7 million and he appropriate price-sales ratio is 2.9. The company's WACC is 8.5 percent and the tax ate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price

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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The Podrasky Corporation is considering a $250 million expansion (capital expenditure) program next year. The company currently has $400 million in net fixed assets on its books. Next year, the company expects to earn $70 million after interest and taxes. The company also expects to maintain its present level of dividends, which is $20 million. If the expansion program is accepted, the company expects its inventory and accounts receivable each to increase by approximately $25 million next year. Long-term debt retirement obligations total $9 million for next year, and depreciation is expected to be $75 million. The company does not expect to sell any fixed assets next year. The company maintains a cash balance of $5 million, which is sufficient for its present operations. If the expansion is accepted, the company feels it should increase its year-end cash balance to $7 million because of the increased level of activities. For planning purposes, assume no other cash flow changes for next…
Alfa Inc company is targeted for merger. In the present, the revenues of the company are $10 mil and it is forecast that in the next years it will increase by 10% each year. The operating expenses are $8 mil, which are expected to grow with the same growth rate as the revenues. Depreciation is $500,000 and is estimated to increase by $50,000/year. The investment needs (CAPEX) are $200,000 each year, and the short term financing needs (NWC) are estimated at 2% of turnover. The company has $1 mil in net debts, at an interest rate of 4.5%. The risk-free rate for government bonds is 4.5%, the market risk premium is 6% and beta coefficient is 1.5. The D/E ratio is 0.5After the merger, the D/E ratio will be 0.35 taking into account the repayment of loans forecasted by the acquirer. Net debt = 700,000 after the deal b) Will the company record a financial synergy. Compute the value of the synergy. c) $10 mil will be a good price for the deal?
Halliford Corporation expects to have earnings this coming year of $3.26 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 50% its earnings. It will retain 17% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 22.8% per year. Any earnings that are not retained w be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10.6%, what price would you estimate for Halliford stock? The stock price will be $ (Round to the nearest cent.)
A start-up company expects to spend $100,000 the first year for advertising, with amounts decreasing by $10,000 each year. Income is expected to be $400,000 the first year, increasing by $50,000 each year. Determine the equivalent annual worth in years 1 through 5 of the company’s net cash flow at an interest rate of 16% per year
Mars Corporation is interested in estimating the expected rate of sales growth sustainability and additional financing needed to support improvements fast sales next year. Last year, revenue was $5.5 million; net profit is $500,000; investment in assets is $2,500,000; payables and accruals are $1,000,000; and shareholder equity at the end of the year is $1,500,000 (that is, the equity at the beginning of the year of $1,000,000 plus retained earnings of $500,000). The business does not pay dividends and does not expect to pay dividends in the future. a.Compute forecasted sales and changes in sales first. What is your estimate of the funds additions needed next year to support the upgrade sales by 20 percent? Also include the interpretation of the results of the calculations
A firm has Sales of $25,000,000, total assets of $22,000,000, current assets of $8,000,000, spontaneous liabilities of $5,000,000, a profit margin of 5 percent, a tax rate of 40%, and a dividend payout rate of 20 percent. Sales are expected to increase to $28,000,000 for the coming year, and the firm will need to increase its fixed assets at this level of sales (that is, fixed assets will increase proportionately with sales). Given this information, and using the equation approach, determine the additional funds needed for the coming year. O $950,000 O $1.010,000 Ⓒ$920.000 $980,000 O $1,040,000
A company is projected to generate revenues of $336 million and $406 million over the next two years. After that, the company is assumed to enter its terminal phase with steady growth. Given the following information, how much is each share worth today? Answer in dollars rounded to one decimal place. Forecasted operating margin: 35.4%. Forecasted tax rate: 22.2%. Forecasted reinvestment rate: 30%. Forecasted steady growth rate of free cash flow: 1.3% per year. Cost of capital: 13.2%. Debt: $40 million. Cash: $35 million. Shares outstanding: 12 million.
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MaxValue is expected to have EBIT of $1,500,000.00 one year from now. Because MaxValue is in a mature industry, the CEO expects the company's EBIT to grow at the stable growth rate of 2% per year forever. The firm's WACC is 9% and its corporate tax rate is 40%. Capital expenditures are 25% of EBIT while changes in networking capital is 10% of EBIT. Depreciation is 15% of EBIT. What is the value of the firm? a) $21,428,571.43 b) $8,742,857.14 c) $17,142,857.14 d) $8,571,428.57 e) $16,071,428.57
Finlay Corporation had sales this year of $3,270 million, and sales are expected to grow by 20 percent next year. Next year the company expects cost of goods sold to be 60 percent of sales, selling expenses to be $40 million per month, depreciation to be $10 million per month, and interest expense to be $24 million per month. Taxes are computed at 21 percent. What is Finlay's expected net income next year?
Derry Corporation is expected to have an EBIT of $3,400,000 next year. Increases in depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $155,000, and $195,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $17,500,000 in debt and 1,350,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company's WACC is 9.1 percent and the tax rate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $70 million next year. ARI currently has accounts receivable of $9 million, inventories of $15 million, and net fixed assets of $18 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $14 million to a new level of $18 million next year. ARI wants to increase its cash balance at the end of next year by $2 million over its current cash balances, which average $4 million. Earnings after taxes next year are forecasted to be $10 million. Next year, ARI plans to pay dividends of $2 million, up from $500,000 this year. ARI's marginal tax rate is 34 percent. How much external financing is required by ARI next year? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million

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