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18 Kingsman Incorporated had operating income before interest and taxes in 2011 of $220 million. The firm was expected to generate this level of operating income indefinitely. The firm had depreciation expense of $10 million that same year. Capital spending totaled $20 million during 2011. At the end of 2010 and 2011, working capital totaled $70 and $80 million, respectively. The firm's combined marginal state, local, and federal tax rate was 40% and its debt outstanding had a market value of $1.2 billion. The 10-year Treasury bond rate is 5% and the borrowing rate for companies exhibiting levels of creditworthiness similar to Kingsman is 7%. The historical risk premium for stocks over the risk free rate of return is 5.5%. No Growth's beta was estimated to be 1.0. The firm had 2,500,000 common shares outstanding at the end of 2011. Kingsman target debt to total capital ratio is 30%.a. Estimate free cash flow to the firm in 2011.b. Estimate the firm's cost of capital.c. Estimate the value of the firm assuming the comparative market multiple of EBITDA is 6xd. Estimate the value of the equity of the firm at the end of 2011. e. Estimate the value per share at the end of 2011.FINANCIAL MODELING EXERCISEPrepare a financial five year income statement projection in Excel with the following assumptions:Year One:Unit Sales - 4,000,000Unit Price - $25COGS - 50%Sales & Marketing Expense - 15% of revenuesGeneral & Administrative Expense - $2,000,000Tax Rate 40%Annual Depreciation - $100,000 (included in G&A Expense)Year Two through Year FiveUnit Sales Increase - 10% per yearPrice Increases - 2% per yearG&A increases - 4% per year1. Calculate Annuala. Gross Marginb. EBITDA Marginc. Net Profit Margin2. If Company is valued at 6x EBITDA, what is the estimated current value after Year 1? Year 5?3. Describe the operating leverage this company possesses?
Hardmon Enterprises is currently an all-equity company with an expected return of 12 percent. It is planning a leveraged recapitalization in which it would borrow and repurchase existing shares.
There are Two investors are evaluating General Motors stock for a possible stock buy. They agree on the expected value of and also on the expected future dividend increase rate.
A stock has an expected return of 13%, its beta is .55, and the risk-free rate is 7.15%. Determine the expected return on the market?
I have just been hired through the new president of Playword Greeting Cards, an established company that sells greeting cards and collectibles to its own line of company-owned and franchise stores.
A corporation has decided to provide the pension for key employee who is scheduled to retire in 12 years-What should the annual payments be in order to fund this pension?
Assume you are aware of the following investment opportunity: You could open a coffee shop around the corner from your home for $25,000. IF business is strong, you could net $15,000 in after tax cash flows each year over next 5-years.
Examine a how the debt ceiling will impact the financial markets - Global country comparison of debt ceilings, how high they are?
Many years ago, Castles in the Sand, Corporation issued bonds at face value at a yield to maturity of 7%. Now, with 8 years left until the maturity of the bonds, the corporation has run into hard times and the yield to maturity on the bonds has incre..
A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should
Explain the term Bond valuation and What is the annual interest payment on the second issue
One method used to obtain an estimate of the term structure of interest rates is called bootstrapping. Suppose you have a one-year zero coupon bond with a rate of r1 and a two-year bond with an annual coupon payment of C
Pros and cons of a global currency. Why a global currency might or might not be a viable exchange rate arrangement.
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