Q1:
Pak China Railroad reported net income of $770 million
after interest expenses of $320 million in a recent
financial year. (The corporate tax rate was 36%.) It reported
spending was $1.2 billion. The firm also had $4 billion
in debt outstanding on the books, was rated AA (carrying
a yield to maturity of 8%), and was trading at par
(up from $3.8 billion at the end of the previous year).
The beta of the stock is 1.05, and there were 200 million
shares outstanding (trading at $60 per share), with
a book value of $5 billion. Union Pacific paid 40% of its
earnings as dividends and working capital requirements
are negligible. (The Treasury bond rate is 7%.)
Estimate the value of the firm now.
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