Determine the free cash flow to the firm

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Reference no: EM13746167

Problem 1: Eagle Products' EMT is $300, its tax rate is 35%, depreciation is $20, capital expendi¬tures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?

Problem 2: FinCorp's free cash flow to the firm is reported as $205 million. The firm's interest expense is $22 million. Assume the tax rate is 35% and the net debt of the firm increases by $3 million. What is the market value of equity if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?

Problem 3: Sister Corp expects to earn $6 per share next year. The firm's ROE is 15% and its plowback ration 60% If the firm's market capitalization rate is 10%, what is the present value of its growth opportunities?

Problem 4: A common stocks pays an annual dividend per share of $2.10. The risk-free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $2.10, what is the value of the stock?

Problem 5:

A. MF Corp. has an ROE of 16% and a plowback ration of 15%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%.

B. What price do you expect MF shares to sell for in three years?

Problem 6: Helen Morgan, CFA, has been asked to use the DDm to determine the value of Sundanci, Inc. Morgan anticipates that Sundanci's earnings and dividends will grow at 32% for two years and 13% thereafter.

Calculate the current value of a share of Sundanci stock by using a two-stage dividend discount model and the data from Table.

Income Statement	2009	2010
Revenue	$474	$598
Depreciation	20	23
Other operating costs	368	460
Taxes	86	115
Net incomes	26	35
Dividends	60	80
Earnings per share	18	24
Dividends per share	$0.714	$0.952
Common Shares outstanding (Millions)	$0.214	$0.286
	84.0	84.0

Balance Sheet	2009	2010
Current Assets	$201	$326
Net property, plant, and equipment	474	489
Total assets	675	815
Current liabilities	57	141
Long term debt	0	0
Total liabilities	57	141
Shareholder's equity	618	674
Total liabilities and equities	675	815
Capital expenditure	34	38

Required rate of return on equity	14%
Growth rate of industry	13%
Industry P/E ratio	26

Reference no: EM13746167

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