Question
In: Finance
Computing Present Value of Terminal Residual Operating Income Use the following data to compute the present...
Computing Present Value of Terminal Residual Operating Income
Use the following data to compute the present value of the terminal period ROPI for each of the four firms A through D. Assume a forecast horizon of four years.
| A | B | C | D | |
|---|---|---|---|---|
| Terminal period ROPI | $208,011 | $46,767 | $93,674 | $124,622 |
| Weighted average cost of capital (WACC) | 8.1% | 11.9% | 9.7% | 13.9% |
| Terminal growth period rate | 2.0% | 1.0% | 2.5% | 2.0% |
Do not round until your final answers. Round your answers to the
nearest whole number.
| A | B | C | D | ||||
|---|---|---|---|---|---|---|---|
| PV of terminal period ROPI | $Answer | $Answer | $Answer | $Answer |
Solutions
Expert Solution
| Project A | Year 1 | Year 2 | Year 3 | Year 4 | ||
| Cash flow | 208011 | 212171.2 | 216414.6 | 220742.9 | ||
| [email protected]% | 0.925069 | 0.855753 | 0.791631 | 0.732314 | ||
| PV | 192424.6 | 181566.2 | 171320.6 | 161653.1 | ||
| Total | 706964.5 | |||||
| PV of terminal ROPI | 706964.5 | |||||
| ProjectB | Year 1 | Year 2 | Year 3 | Year 4 | ||
| Cash flow | 46767 | 47234.67 | 47707.02 | 48184.09 | ||
| [email protected]% | 0.893655 | 0.798619 | 0.71369 | 0.637793 | ||
| PV | 41793.57 | 37722.52 | 34048.03 | 30731.47 | ||
| Total | 144295.6 | |||||
| PV of terminal ROPI | 144295.6 | |||||
| Project C | Year 1 | Year 2 | Year 3 | Year 4 | ||
| Cash flow | 93674 | 96015.85 | 98416.25 | 100876.7 | ||
| [email protected]% | 0.911577 | 0.830973 | 0.757496 | 0.690516 | ||
| PV | 85391.07 | 79786.55 | 74549.87 | 69656.9 | ||
| Total | 309384.4 | |||||
| PV of terminal ROPI | 309384.4 | |||||
| Project D | Year 1 | Year 2 | Year 3 | Year 4 | ||
| Cash flow | 124622 | 127114.4 | 129656.7 | 132249.9 | ||
| [email protected]% | 0.877963 | 0.770819 | 0.676751 | 0.594162 | ||
| PV | 109413.5 | 97982.26 | 87745.31 | 78577.89 | ||
| Total | 373719 | |||||
| PV of terminal ROPI | 373719 | |||||
jeff jeffy answered 2 years agoRelated Solutions
Computing Present Value of Terminal Period FCFF Use the following data to compute the present value...
Computing Present Value of Terminal Period
FCFF
Use the following data to compute the present value of the
terminal period free cash flows to the firm for each of the four
firms A, B, C, and D. The forecast horizon included four years.
A
B
C
D
Terminal period free cash flow to the firm (FCFF)
$72,670
$16,813
$101,517
$44,672
WACC
5.0%
6.2%
4.3%
11.0%
Terminal period growth rate
1.0%
1.0%
2.0%
1.5%
Round answers to the nearest whole number....
Computing Present Value of Terminal Period FCFF Use the following data to compute the present value...
Computing Present Value of Terminal Period FCFF
Use the following data to compute the present value of the
terminal period free cash flows to the firm for each of the four
firms A, B, C, and D. The forecast horizon included four years.
A
B
C
D
Terminal period free cash flow to the firm (FCFF)
$62,670
$6,813
$91,517
$34,672
WACC
5.0%
6.2%
4.3%
11.0%
Terminal period growth rate
1.0%
1.0%
2.0%
1.5%
Round answers to the nearest whole number....
Computing the Present Value of a Debt Security Compute the present value of a five-year bond...
Computing the Present Value of a Debt
Security
Compute the present value of a five-year bond with a face value
of $2,000, a 10% annual coupon payment, and an 8% effective
rate.
Round answers to two decimal places.
$Answer
1.1?A trainee analyst makes the following statement: “The terminal value element in the Residual Income Valuation...
1.1?A trainee analyst makes the following statement: “The
terminal value element in the Residual Income Valuation Model
typically accounts for a much larger proportion of the estimated
intrinsic value of equity than the terminal value element in the
Discounted Free Cash Flow and Dividend Discount Models. This makes
the Residual Income Valuation Model inferior to the other two
models”. Critically assess the statement.
1.2?sing the Residual Income Valuation Model please demonstrate
what determines a company’s price-to-book (P/B) multiple. Explain
why...
Computing ROPI for Multiple Years Use the following data to compute ROPI for Intel Corporation for...
Computing ROPI for Multiple Years
Use the following data to compute ROPI for Intel Corporation for
2016 through the terminal period. Assume that the company's
weighted average cost of capital is 9%.
Actual
Horizon Period
Terminal
$ millions
2015
2016
2017
2018
2019
Period
Sales
$55,466
$61,555
$67,699
$73,771
$78,962
$80,511
NOPAT
11,343
13,573
14,248
15,524
15,825
15,331
NOA
51,488
57,157
62,873
68,521
72,674
74,101
Round answers to the nearest whole number.
Forecast Horizon
Terminal
($ millions)
2016
2017
2018...
Describe the unique features of Residual Income, Return on Investment, Payback, Net Present Value and Internal...
Describe the unique features of Residual Income, Return on
Investment, Payback, Net Present Value and Internal Rate of Return
in measuring financial performance.
Critically analyse the strengths and weaknesses of each
measure.
Comment on the problem that may be involved in comparing
divisional performance.
Discuss the approaches that can be used to avoid dysfunctional
behavior which is motivated by accounting-based performance
targets.
Explain the return and risk relationship concept in finance.
Describe a situation whereby a department’s attitude is: Risk...
Use the present value tables in Appendix A and Appendix B to compute the NPV of...
Use the present value tables in Appendix A and Appendix B to
compute the NPV of each of the following cash inflow:
$30,750 received annually at the end of years 1 through 5
followed by $26,250 received annually at the end of years 6 through
10. The discount rate is 14 percent.
You value a company using the discounted free cash flow model and the residual operating income...
You value a company using the discounted free cash flow model
and the residual operating income model. You are surprised that the
valuations are different. Which of the following could be the
cause?
A.
Your forecast horizon is too short
B.
You have assumed that weighted-average cost of capital (WACC)
will be constant in the future
C.
You have forecasted that the company’s leverage will stay
constant
D.
You have forecasted sales growth to converge to the long-run
economic growth...
How do you evaluate an operating segment or project using residual income and economic value added?
How do you evaluate an operating segment or project
using residual income and economic value added?
The following present value factors are provided for use in this problem. Periods Present Value of...
The following present value factors are provided for use in this
problem.
Periods
Present Value
of $1 at 10%
Present Value of
an
Annuity of $1 at 10%
1
0.9091
0.9091
2
0.8264
1.7355
3
0.7513
2.4869
4
0.6830
3.1699
Cliff Co. wants to purchase a machine for $64,000, but needs to
earn an 10% return. The expected year-end net cash flows are
$25,000 in each of the first three years, and $29,000 in the fourth
year. What is the...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Prepare ONE Page reflection to the readings of the Perceptual Process incorporating as well one outside...
- How is the internet affecting our everyday life? I just need a rough draft for this...
- Please explain your view of the most difficult aspect of Customs Compliance?
- You are required to write an interactive program that prompts the user for seven (7) real...
- Describe in detail the five-forces model of industry competition. What causes each of the forces to...
- Java Programming. I'm writing this in an IDE called Eclipse. If you could also use comments...
- Scenario: You are a departmental manager in a large community hospital in an urban area. Your...
ADVERTISEMENT