Calculate the value of the firm

Assignment Help Financial Management
Reference no: EM13891153

1. "A firm pays dividends of $5 million once annually. Analysts expect the dividends to remain at this amount indefinitely. The cost of equity is 14%.

a. Calculate the value of the firm.
b. Analysts now expect that dividends will grow annually by 3%. Calculate the firm value."

2. A firm has expected free cash flows to the firm of $12 million annually which are expected to grow at 3.5% each year. It uses both debt and equity. The cost of equity is 13% and the after-tax cost of debt is 7.5%. The debt to asset ratio is 40%. Calculate the value of the firm.

3. "A firm has the projected cash flows as indicated below.

a. Assuming the Year 5 free cash flow amount is expected to grow at 3% annually indefinitely and the firm has a Weighted Average Cost of Capital (WACC) of 9.8% calculate the firm value.

b. If the market value of the debt is $170 million what is the value of equity?"

Year Free Cash Flow to Firm
($ in millions)
0 $25
1 $30
2 $33
3 $35
4 $37
5 $38

Reference no: EM13891153


Write a Review


Financial Management Questions & Answers

  What is the annual dividend yield

The stock of Pills Berry Company is currently selling at $60 per share. The firm pays a dividend of $1.80 per share. What is the annual dividend yield? If the firm has a payout rate of 50 percent, what is the firm’s P/E ratio?

  About the prize money

In 1968 prize money for the Wimbledon Tennis Championships was first awarded. The winner of the men’s singles was £2,000. In 2009 the winner received £850,000.  What was the percentage increase per year in the winner’s cheque for men and women over t..

  Biggest environmental challenges of the future

Explain in detail some of the biggest environmental challenges of the future for healthcare financial managers and provide an example of a financial report and then explain in detail the steps in the financial analysis process.

  Making deposits into fund continuously at rate

Max starts making deposits into a fund continuously at a rate of (19-2t). He will be making deposits until time t=7. This fund credits a force of interest of 2.1%. Calculate the present value of this fund two ways: one method should use an Increasing..

  Calculate NPV and MIRR of pulley project

When considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,400, and that for the pulley system is $20,200.

  An investment advisor is recommending bond

If an investment advisor is recommending a bond that is essentially risk free, that is, a bond that is guaranteed by the US government (e.g. Ginnie Mae), does that advisor have an obligation to explain the investment risk to his/her client fully?

  What is the margin of safety in units sold

Juliet’s Children’s Clothes Company (JCCC) has a target profit of $100,000. That profit requires unit sales to be 2,000. JCCC’s variable cost per unit is $100 and fixed expenses are $50,000. If JCCC achieves that target profit, what is the margin of ..

  Corporate taxes capital structure theory

Consider a world where the M&M Corporate Taxes Capital Structure theory is true, then answer the following question. An all-equity firm currently has a market value of $622.09. The firm decides to issue debt in order to repurchases $126.48 in equity...

  About the retirement goal

You believe you will need to have saved 500,000$ by the time you retire in 40 years in order to live comfortably. if the interest rate is 6% per year, how much must you save each year to meet your retirement goal? a couple thinking about retirement d..

  Unfunded pension liability-present value of liability

Imprudential, Inc., has an unfunded pension liability of $850 million that must be paid in 22 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.0..

  Companys wacc if all equity used is from reinvested earnings

Quinlan Enterprises stock trades for $52.50 per share. It is expected to pay a $2.50 dividend at year end (D1 = $2.50), and the dividend is expected to grow at a constant rate of 5.50% a year. The before-tax cost of debt is 7.50%, and the tax rate is..

  What compound rate is necessary for the money to double

There is a rule of thumb which can be used as an approximation called the Rule of 72 to find interest or period of time, given the other quantity, and it is given as ni=72.If $1 is invested for 10 years, what compound rate is necessary for the money ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd