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ABC company just completed a business strategy for the next 5 years that is planned to result in increasing sales growth and slightly improve its operating margin. (Note: the operating margin includes depreciation expense). This business plan will require reinvestment of NOPAT to grow the business and will require incremental working capital and net fixed capital investments of 25% of NOPAT. Prior year sales were 600M and are planned to grow by 5% in the first year followed by 6% and 7% in the next two years. In years 4 and 5 of the forecast period sales are expected to level off to a 6% growth rate after that. Improvements in operating costs are expected to improve the operating margin to 10% in year 1, increasing to 11% in the second year and to 12% in year 3. However, competitive pressures and increased costs are expected to shrink margins to 11% in years 4 and 5. Taxes will remain at 40% and the WACC for ABC company is 12%.
a. Determine the FCF (Free Cash Flow) for the 5 year forecast period.
b. Determine the present value of this 5 year forecast period.
Compare and contrast the characteristics of securities of money market with those of capital market.
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Park Place will provide $370,000 per year in cash flow (aftertax income plus depreciation) for the next 25 years. If Boardwalk Corporation has a cost of capital of 13 percent. Use Appendix D.
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Suppose you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you & your partners decide to look at 2-existing establishments,
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Buchanan Corporation is refunding $12 million worth of 10% debt. The corporation's tax rate is 35%. The call premium is 9 percent.
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