Question
In: Finance
Amarindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing...
Amarindo, Inc. (AMR), is a newly public firm with 10.0 million shares outstanding. You are doing a valuation analysis of AMR. You estimate its free cash flow in the coming year to be $14.86 million, and you expect the firm's free cash flows to grow by 4.4% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of AMR's equity beta. However, you do have beta data for UAL, another firm in the same industry: AMR has a much lower debt-equity ratio of 0.24, which is expected to remain stable, and its debt is risk free. AMR's corporate tax rate is 32%,
the risk-free rate is 5.3%, and the expected return on the market portfolio is 11.1%.
Equity Beta Debt Beta Debt and Equity Ratio
UAL 1.20 .24 .8
a. Estimate AMR's equity cost of capital.
b. Estimate AMR's share price.
a. Estimate AMR's equity cost of capital.
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 2 years agoRelated Solutions
Amarindo, Inc. (AMR), is a newly public firm with 10.5 million shares outstanding. You are doing...
Amarindo, Inc. (AMR), is a newly public firm with 10.5 million
shares outstanding. You are doing a valuation analysis of AMR. You
estimate its free cash flow in the coming year to be $14.84
million, and you expect the firm's free cash flows to grow by
4.1% per year in subsequent years. Because the firm has only been
listed on the stock exchange for a short time, you do not have an
accurate assessment of AMR's equity beta. However, you...
18.5 Amarindo, Inc is a newly public firm with 8.0 million shares outstanding. You are doing...
18.5
Amarindo, Inc is a newly public firm with 8.0 million shares
outstanding. You are doing a valuation analysis of AMR. You
estimate its free cash flow in the coming year to be 15.05 million,
and you expect the firms free cash flows only to grow by 4.4% per
year in subsequent years. Because the firm has only been listed on
the stock exchange for a short time, you do not have an accurate
assessment of AMR's equity beta. However,...
RMA is a public firm with 11.5 million shares outstanding. You are doing a valuation analysis...
RMA is a public firm with 11.5 million shares outstanding. You
are doing a valuation analysis of RMA. You estimate its free cash
flow in the coming year to be $15.46 million, and you expect the
firm's free cash flows to grow by 7.1% per year in subsequent
years. Because the firm has only been listed on the stock exchange
for a short time, you do not have an accurate assessment of RMA's
equity beta. However, you do have beta...
Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings...
Jackson Software, Inc. is an all-equity firm with 2 million
shares outstanding, $6 million in earnings after taxes, and a
market value of $100 million. The firm borrows $25 million at an
interest rate of 8% and buys back 500,000 shares with the proceeds.
The firm's tax rate is 40%. Management does not want the earnings
performance to disappoint shareholders and market analysts. What is
the maximum interest rate the firm could pay on its new debt so as
not...
SNC Inc., an unlevered firm, has 1 million shares outstanding, each trading at $25. The firm...
SNC Inc., an unlevered firm, has 1 million shares outstanding,
each trading at $25. The firm is thinking of changing its capital
structure by issuing $10 million of debt at 10% and will use the
proceeds to repurchase shares. Assume the bank pays an interest
rate of 10%.
Assume that SNC Inc. decides to convert to the proposed capital
structure. Jane, a shareholder of the firm, owns 15,000 shares. She
prefers the cash flows she was receiving under the all-equity...
XYZ Satellites Inc. is an all equity firm with 200,000 shares outstanding and $20 million in...
XYZ Satellites Inc. is an all equity firm with 200,000
shares outstanding and $20 million in earnings after taxes with a
market value of $350 million.The company borrows $75 million to
repurchase#50000 shares @8%.The tax rate is 50%.
1) What effect will this have on the earning per share of the
firm?
2) At what interest rate would have to be on the debt for the EPS
effect to disappear?
ABC Inc. has 10 million shares of common stock outstanding. The firm also has 1,200,000 shares...
ABC Inc. has 10 million shares of common stock outstanding. The
firm also has 1,200,000 shares of 6 percent preferred stock (annual
dividend=$6) and 300,000 semi-annual bonds of $1,000 face value
with a coupon rate of 8 percent semiannual bonds outstanding. The
bonds were issued five years ago with maturity of 30 years when
they were issued. The market price of common stock is $46 per share
and has a beta of 0.85, the preferred stock currently sells for $90...
26) ABC Inc. has 10 million shares of common stock outstanding. The firm also has1,200,000 shares...
26) ABC Inc. has 10 million shares of common stock outstanding.
The firm also has1,200,000 shares of 6 percent preferred stock
(annual dividend=$6) and 300,000 semi-annual bonds of $1,000 face
value with a coupon rate of 8 percent semiannual bonds outstanding.
The bonds were issued five years ago with maturity of 30 years when
they were issued. The market price of common stock is $46 per share
and has a beta of 0.85, the preferred stock currently sells for $90...
?Zelnor, Inc., is an? all-equity firm with 180 million shares outstanding currently trading for $ 11.52...
?Zelnor, Inc., is an? all-equity firm with 180 million shares
outstanding currently trading for $ 11.52 per share. Suppose Zelnor
decides to grant a total of 18 million new shares to employees as
part of a new compensation plan. The firm argues that this new
compensation plan will motivate employees and is better than giving
salary bonuses because it will not cost the firm anything. Assume
perfect capital markets. a. If the new compensation plan has no
effect on the...
The shares outstanding of RING Inc. are 321 million. At the end of the year, the...
The shares outstanding of RING Inc. are 321 million. At the end
of the year, the company expects its earnings to be $641 million.
The equity cost of capital of the company is 11%. The firm pays out
50% of its earnings in total: 20% used to repurchase shares and 30%
paid out as dividends. If earnings are expected to grow at a
constant rate of 7% per year, what is the share price of RING
Inc?
Select one:
$12.48...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- PUT IN JAVA PROGRAMMING The StockB class: Design a class named StockB that contains the following...
- Draw a DFA for the following ( ∑ = {0,1}): Set of all strings with.
- In the article from Forbes notes that the goal of a leader is not to clone...
- Many people keep time using a 24 hour clock (11 is 11am and 23 is 11pm,...
- UNIX ONLY -- DIFFICULT LAB ASSIGNMENT This is an extremely difficult subject for me. Could you...
- Do you know why your credit card can be refused even though you are profitable?
- The Following Java expression: S/10 * 10 + 10 – S = C Show that this...
ADVERTISEMENT