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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.
The largest bank serving the company's local business community is currently offering an interest rate of 5.5% on three- year CD's. The bank pays interest on it CD's to depositors annually.
Community Hospital has annual net patient revenues of $150 million. At the present time, payments received by the hospital are not deposited for six days on average. The hospital is exploring a lockbox arrangement
frank Zanca is considering three different investments that his broker has offered to him. the different cash flows are as follows: end of the year A B C
We are evaluating a project that costs $1,582,000, has a seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project.
The company's income tax rate is 40% on all items of income or loss. These revenue and expense items appear in the company's income statement every year.
Gardial plans to maintain its current 30% debt-to-total-assets ratio for its capital structure and to maintain its dividend policy in which at the end of each year it distributes 55% of the year's net income.
a bank can borrow or lend LIBOR. suppose that the six- month rate is 2% and the nine- month rate is 3%. The rate that can be locked in for the period between six months and nine months using an FRA is 4%.
A firm's recent dividend was $2.00 per share. The stock is selling in the market place for $50.00 per share. If investors are demanding 10% on this stock, what is this stock's growth rate
Shapland Inc. has fixed operating costs of $350,000 and variable costs of $60 per unit. If it sells the product for $70 per unit, what is the break-even quantity
Triplin Corporation's marginal tax rate is 35%. It can issue 10-year bonds with an annual coupon rate of 7% and a par value of $1,000. After $12 per bond flotation costs, new bonds will net the company $966 in proceeds
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio.
You are analyzing a project and have developed the following estimates: unit sales = 1,320, price per unit = $79, variable cost per unit = $43, fixed costs = $24,900. The depreciation is $11,300 a year and the tax rate is 40 percent.
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