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Following is a four-year forecast for Torino Marine. Year 2015 2016 2017 2018 Free CFs in million -76 92 112 150 a. Estimate the fair market value of Torino Marine at the end of 2014. Assume that after 2018, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Torino Marine’s weighted-average cost of capital is 15 percent and its tax rate is 34 percent. b. Estimate the fair market value per share of Torino Marine’s equity at the end of 2014 if the company has 40 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $230 million. c. Now let’s try a different terminal value. Estimate the fair market value of Torino Marine’s equity per share at the end of 2014 under the following assumptions: (1) Free cash flows in years 2015 through 2018 remain as stated earlier. (2) EBIT in year 2018 is $200 million, and then grows at 7 percent per year forever. (3) To support the perpetual growth in EBIT, capital expenditures in year 2019 exceed depreciation by $50 million, and this difference grows 7 percent per year forever. (4) Similarly, working capital investments are $15 million in 2019, and this amount grows 7 percent per year forever.
What are the primary functions served by investment bankers? What are the differences between a direct placement, a public cash offering, and a rights offering of securities?
Which of the following factors of production DO NOT flow freely between countries?
Allied Products, Inc., is considering a new product launch. The firm expects to have annual operating cash flow of $8.5 million for the next 9 years. Allied Products uses a discount rate of 14 percent for new product launches. calculate the equivalen..
The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk free rate of return is 3.5%. The instantaneous standard deviation of its stock is 35%. You wish to purchase options on ..
Describe the dividend theories: dividend irrelevance, dividend preference, tax effect theory, clientele effect, and signaling hypothesis.
The number one semiconductor company in the world, Applied Materials, recently merged with the world's number three semiconductor company, Tokyo Electron. The stock prices of both companies went up significantly after the merger was announced, which ..
Contributing $2,000 per year into a tax deferred retirement plan will save how much in income taxes per year for a person in the 35% marginal income tax rate including federal and state income taxes
XYX Company is expected to pay a dividend of $1.60 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. If the required rate of return on the common stock is 10.33% What is the co..
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $910,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $105,000. The s..
Suppose your know that a company's stock currently sells for $73.25 per share and the required return on the stock is 7.31 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.
Fama’s Llamas has a weighted average cost of capital of 11 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 9 percent. The tax rate is 40 percent. What is the company’s target debt−equity ratio?
James Corporation has the following terms with its suppliers: 2/10, net 60. It normally takes the discount and pays within ten days. However, due to cash shortage, it intends to delay the payment. Find the cost of this short-term financing for James.
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