Question

In: Finance

3. A firm has the following three projections of revenue estimates: Current Year1 Year 2 Year...

3. A firm has the following three projections of revenue estimates:

Current Year1 Year 2 Year 3

Revenue $1,500 $1,650 $1,815 $2,000

EAT $95 $106 $117 $130

The company also receives a royalty net after taxes of $10 million per year. It is expected that the cash flows equal to depreciation will have to be reinvested to keep the firm operating. Further, capital expenditures equal to 60 percent of the net cash flow will need to be invested to keep the firm growing. Other items on the balance sheet remain unchanged. The CFO believes that it will just forecast for the first three years and then simply assume a 6 percent annual growth rate after the third year.

T-bills yield 8 percent and the market return is 13 percent. The company’s beta using Hamada equation is 1.2. What is the value of the company or what would you pay for the firm if you were interested in it.


Solutions

Expert Solution

jeff jeffy answered 4 months ago
Next > < Previous

Related Solutions

2. A firm has the following three projections of revenue estimates: Current Year1 Year 2 Year...
2. A firm has the following three projections of revenue estimates: Current Year1 Year 2 Year 3 Revenue $1,500 $1,650 $1,815 $2,000 EAT $95 $106 $117 $130 The company also receives a royalty net after taxes of $10 million per year. It is expected that the cash flows equal to depreciation will have to be reinvested to keep the firm operating. Further, capital expenditures equal to 60 percent of the net cash flow will need to be invested to keep...
A firm has the following three projections of revenue estimates: Current        Year1            Year 2        &n
A firm has the following three projections of revenue estimates: Current        Year1            Year 2           Year 3        Revenue       $1,500                 $1,650          $1,815          $2,000        EAT        $95               $106             $117             $130   The company also receives a royalty net after taxes of $10 million per year. It is expected that the cash flows equal to depreciation will have to be reinvested to keep the firm operating. Further, capital expenditures equal to 60 per cent of the net cash flow will need to be invested to keep the firm growing. Other items on the balance sheet remain unchanged....
violet corporation has the following data for the past 2 years year1 year 2 sales 1000...
violet corporation has the following data for the past 2 years year1 year 2 sales 1000 500 ROI 40% 12.5% residual Income 160 10 requires rate of return ? the sales margin in year 2 is half of the margin in year 1, what is the required rate of return in year 1 Explain Please!!
In the current tax year, IRS, the internal revenue service of the United States, estimates that...
In the current tax year, IRS, the internal revenue service of the United States, estimates that five persons of the many high network individual tax returns would be fraudulent. That is, they will contain errors that are purposely made to cheat the government. Although these errors are often well concealed, let us suppose that a thorough IRS audit will uncover them. Given this information, if a random sample of 100 such tax returns are audited, what is the probability that...
In the current tax year, IRS, the internal revenue service of the United States, estimates that...
In the current tax year, IRS, the internal revenue service of the United States, estimates that five persons of the many high network individual tax returns would be fraudulent. That is, they will contain errors that are purposely made to cheat the government. Although these errors are often well concealed, let us suppose that a thorough IRS audit will uncover them. Given this information, if a random sample of 100 such tax returns are audited, what is the probability that...
Your firm is considering issuing​ one-year debt, and has come up with the following estimates of...
Your firm is considering issuing​ one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of​ debt: Debt Level​ (in $​ million) 0 40 50 60 70 80 90 PV​ (interest tax​ shield, $​ million) 0.00 0.76 0.95 1.14 1.33 1.52 1.71 Probability of Financial Distress 0% 0% 1% 2% 7% 16% 31% Suppose the firm has a beta of​ zero, so that the...
Your firm has a free cash flow of $300 at year 1, $360 at year 2, and $864 at year 3. After three years, the firm will cease to exist.
Your firm has a free cash flow of $300 at year 1, $360 at year 2, and $864 at year 3. After three years, the firm will cease to exist. As of today (i.e. at year 0), the firm is partially financed with a 1-year maturity debt, whose face value is $660 and interest rate is 10%. After the debt matures at year 1, the firm will not issue any more debt and will remain unlevered. Assume that the firm’s...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3 4 5 Sales 123,422.00 123,422.00 123,422.00 123,422.00 123,422.00 Cost of Goods 69,079.00 69,079.00 69,079.00 69,079.00 69,079.00 S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 Depreciation 22,072.20 22,072.20 22,072.20 22,072.20 22,072.20 Investment in NWC 1,152.00 540.00 540.00 540.00 540.00 540.00 Investment in Gross PPE 110,361.00 The firm has a capital structure of 48.00% debt and 52.00% equity. The cost of debt is 9.00%, while the cost of...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3...
A firm has projected the following financials for a possible project: YEAR 0 1 2 3 4 5 Sales 136,856.00 136,856.00 136,856.00 136,856.00 136,856.00 Cost of Goods 62,752.00 62,752.00 62,752.00 62,752.00 62,752.00 S&A 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 Depreciation 20,519.20 20,519.20 20,519.20 20,519.20 20,519.20 Investment in NWC 1,171.00 542.00 542.00 542.00 542.00 542.00 Investment in Gross PPE 102,596.00 The firm has a capital structure of 33.00% debt and 67.00% equity. The cost of debt is 8.00%, while the cost of...
A firm has projected the following financials for a possible project: Year 0 1 2 3...
A firm has projected the following financials for a possible project: Year 0 1 2 3 4 5 Sales 128,086 128,086 128,086 128,086 128,086 COGS 60,876 60,876 60,876 60,876 60,876 S&A 30,000 30,000 30,000 30,000 30,000 Depreciation 22,696.80 22,696.80 22,696.80 22,696.80 22,696.80 Investment in NWC 1,126.00 598 598 598 598 598 Investment in Gross PPE 113,484.00 The firm has a capital structure of 36.00% debt and 64.00% equity. The cost of debt is 10.00%, while the cost of equity is...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT