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a. Suppose that Firms U and L are growing at a constant rate of 7% and that the investment in net operating assets required to support this growth is $50,000 (10% of EBIT). Use the compressed APV model to estimate the value of U and L, estimate the levered cost of equity, and find the WACC.
b. Now suppose the expected FCF for Y1 is $250,000 but it is expected to grow unevenly over the next 3 years: FCF Y2 = $290,000 and FCF Y3 = $320,000, after which it will grow at a constant rate of 7%. The expected interest expense at Y1 is $80,000, but it is expected to grow over the next couple of years before the capital structure becomes constant: Interest expense at Y2 will be $95,000, at Y3 it will be $120,000 and it will grow at 7% thereafter. What is the estimated horizon unlevered value of operations (i.e. the value at Y3 immediately after the FCF at Y3)? What is the current unlevered value of operations? What is the horizon value of the tax shield at Y3? What is the current value of the tax shield? What is the current total value? The tax rate and unlevered cost of equity remain at 40% and 14%, respectively.
what happens to present value factor as the discount rate or interest rate increases for a given time period? what
Plot the cash flow from operations, net income before extraordinary items, and net income over the five-year period of bank of America on the same graph. Analyze these trends.
You are interested in investing in a five-year bond that pays a 6.18 percent coupon with interest to be received semiannually. Your required rate of return is 9.66 percent. What is the most you would be willing to pay for this bond?
If the correlation coefficient between stock C and stock D is +1.0% and the standard deviation of return for stock C is 15% and that for stock D is 30%, calculate the covariance between stock C and stock D.
Ladders Inc. has a net profit margin of 5.5% on sales of $50.6 million It has book value of equity of $39.5 million and total book liabilities of $31.9 million. What is Ladders ROE and ROA?
The project will require $3,000 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent and a tax rate of 34 percent?
an investor recently purchased a corporate bond which yields 9 percent. the investor is in the 36 percent tax bracket.
from reviewing wal-mart tyears of data which four quarters is normally best for wal-mart and what is the reason why it
market value. a company expects an indefinite stream of future dividends of 200000 and a required rate of return of 16
If an investor is willing to pay a P/E multiple that is no higher than 2.5 times its growth rate, and the stock is currently selling at $100 per share, would this be an acceptable purchase price? Explain and support your answer with numbers.
Ann bought stock in German firm at a price per share of 101.28 euros when the US $/euro exchange rate was $1.023. After 6 months, Ann sold the stock for 103.40 euros when US $/euro exchange rate was $0.987. The stock doesn't pay a dividend. What ..
You are the CEO of a company. what factor could you consider for effective location planning?
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