Corporate valuation problem

Assignment Help Financial Management
Reference no: EM13725170

Corporate valuation

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, $6 million, $8 million, and $13 million. After the fourth year, free cash flow is projected to grow at a constant 5%. Barrett's WACC is 13%, the market value of its debt and preferred stock totals $60 million, and it has 24 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.

Reference no: EM13725170

Questions Cloud

Options pertaining to home mortgage financing : You are given the following options pertaining to home mortgage financing: A) Loan amount $200,00, fixed rate 3.5%, 30 year term, closing costs = $7,000. APR _______________ B) Loan amount $200,000, Fixed rate 3.25%, 30 year term, closing costs = $11..
Create user - itstaff with local administrator privileges : The hospital needs to display a HIPPA warning reminding employees of patient confidentiality requirements to all employees when they log on.
Salient features of the fair labor standards act : Research and identify the salient features of the Fair Labor Standards Act (FLSA). Provide a definition of exempt and nonexempt employees. State at least three criteria that differentiate an exempt and nonexempt employee.
Comparing and contrasting two major erp systems : Create a 7- to 10-slide presentation comparing and contrasting two major ERP systems from different ERP software providers
Corporate valuation problem : 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. What is the present value ..
Write a brief summary of experience what did you talk about : For the purposes of this exercise, write a brief summary of your experience. How did you identify your prospect, What did you talk about
Business are setting the price on a new service : Assume that manager of a business are setting the price on a new service. Relevant data estimates: variable cost per visit: $5.00, Annual direct fixed costs: $500,000, Annually overhead allocation: $50,000, Expected annual utilization 10,000 visits i..
Recommendations for changes to the training design : In a separate Word document, make your recommendations for changes to the training design and development process.
Compare and contrast the three different vendors : Identify three potential vendors. Compare and contrast the three different vendors. Be sure to consider the services, data solutions, and security features they provide.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Assume that the contract value had not increased

Sophia purchased a variable annuity contract with $50,000 purchase payment. Surrender charges begin with 7 percent in the first year and decline by 2 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year witho..

  Interest payment is the result of the real rate of interest

Imagine you borrow $500 from your roommate, agreeing to pay her back $500 plus 10 percent nominal interest in one year. Assume inflation over the life of the contract is expected to be 3.50 percent. What is the total dollar amount you will have to pa..

  What is the remaining balance on the loan after three years

Raylan Givens borrows $150,000 to buy a house. The adjustable rate mortgage carries a 1.5 percent rate for the first 3 years. After that the rate will change annually to reflect market conditions. The annual cap is 2% (i.e., the largest increase in a..

  Scenario afree-cash-flow valuation of equitymake

scenario afree-cash-flow valuation of equitymake entries in blue-colored

  Undiscounted gear to fear estimated future cash flows

You gather/calculate the following information about Gear to Fear: Fair Value of Gear to Fear (determined by 3rd party): $235M Estimated Costs to Sell Gear to Fear: $ 10M Undiscounted Gear to Fear estimated future cash flows: $500M Present Value of G..

  Suppose your friend pat approaches you with a plan to get

suppose your friend pat approaches you with a plan to get in on the solar panel leasing business. pat has identified an

  Calculations if investors were ahead after advance or not

From October 2007 to March 2009, the market declined about 57%. It then advanced in 1 year about 69%. Determine by calculations if investors were ahead after the advance or not?

  Using the wall street journal or barrons find the bond

using the wall street journal or barrons find the bond yields for treasury securities with the following

  Determine the measures for 2012

Determine the measures for 2012, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Assume 365 days a year.

  What is the average real risk premium

You’ve observed the following returns on Doyscher Corporation’s stock over the past five years: –24.6 percent, 13.4 percent, 29.8 percent, 2.2 percent, and 21.2 percent. The average inflation rate over this period was 3.22 percent and the average T-b..

  Why are investors risk-averse and how can investors deal

Why are investors risk-averse and how can investors deal with different degrees of risk and what is the expected return on a portfolio? How can the expected return on a portfolio be manipulated to minimize the risk on that portfolio?

  Explain higher rate of return than the rate of interest

A company has favorable financial leverage when it uses borrowed funds to earn a higher rate of return than the rate of interest paid for the borrowed money.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd