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Barrett Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Barrett does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Barrett's stock. The pension fund manager has estimated Barrett's free cash flows for the next 4 years as follows: $2 million, $5 million, $12 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 5%. Barrett's WACC is 11%, the market value of its debt and preferred stock totals $64 million, and it has 14 million shares of common stock outstanding. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a) What is the present value of the free cash flows projected during the next 4 years? Round your answer to the nearest cent. b) What is the firm's horizon, or continuing, value? Round your answer to the nearest cent. c) What is the firm's total value today? Round your answer to the nearest cent. d) What is an estimate of Barrett's price per share? Round your answer to the nearest cent.
A firm's dividends have grown over the last several years. 5 years ago the firm paid a dividend of $2. Yesterday it paid a dividend of $7. What was the average annual growth rate of dividends for this firm?
If the stock index is at 148, the three-month futures price is 151, the dividend yield is 5 percent and the interest rate is 8 percent, determine the profit from an index arbitrage if the stock ends up at 144 at expiration. (Ignore transaction costs...
A share of stock just paid a dividend of $1.2, with an expected dividend growth of 4.6 percent forever. According to the constant perpetual growth model, if the required return is 14.8 percent, what should the value of the stock be 2 years from now?
Profitability Ratios Maggie’s Skunk Removal Corp.’s 2015 income statement listed net sales of $12.5 million, gross profit of $6.9 million, EBIT of $5.6 million, net income avail- able to common stockholders of $3.2 million, and common stock dividends..
Marketing Concepts Inc. is considering the aquistion of Management Theories Inc. at a cash price of $1.5 million. Management Thories, Inc. has a short term liabilites of $500,000. What is the approximate net present value of this acquistion? How woul..
Laverne Industries stock has a beta of 1.32. The company just paid a dividend of $.82, and the dividends are expected to grow at 5.2 percent. The expected return of the market is 11.7 percent, and Treasury bills are yielding 5.2 percent. The most rec..
MATURITY RISK PREMIUM The real risk-free rate is 3.4%, and inflation is expected to be 3.8% for the next 2 years. A 2-year Treasury security yields 7.8%. What is the maturity risk premium for the 2-year security? Round to ONE decimal place.
If the returns from a security were known with certainty, what shape would the probability distribution of returns graph have? What is the nature of the risk associated with "risk-free" U.S. government bonds?
Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 3% and the market risk premium is 7%.
First National Bank charges 12 percent compounded monthly on its business loans. First United Bank charges 12.2 percent compounded semiannually. Calculate the EAR for each bank. (Enter rounded answers as directed, but do not use rounded numbers in in..
Assume that opening up the Souvenir Shop costs Road Atlanta $800, that the average dollar of sales brings in 55 cents of margin, and that only 25% of spectators buy anything. If a spectator does buy something, let’s guess that he or she will spend ar..
An investment for $50,000 earns a rate of return of 1% in each month of a full year. - How much money will you have at year's end?
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