Question

In: Finance

Micro Bike Company has short term investments of $50, debt of $1,500, and preferred stock of...

Micro Bike Company has short term investments of $50, debt of $1,500, and preferred stock of $200. The equity of the Micro Bike has 100 shares. The company forecasts the following:

2015 2016 2017 2018
Free Cash Flow $30 $90 $130 $210 $220
Target WACC 10% 10% 10% 10% 10%
Free Cash Flow Growth 15% 200% 44.4% 61.5% 4.8%

a. What is the Present Value of Free Cash Flows?

b.What is the Present Value of the Horizon Value?

c. What is the estimated intrinsic value of the equity?

d. What is the estimated intrinic stock price?

plase show work ( the last colums is year 2019)

Solutions

Expert Solution

Discount rate 10.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
                            -   0                                            -                                           -  
                   30.000 1                                     27.27                                  27.27
                   90.000 2                                     74.38                                101.65
                 130.000 3                                     97.67                                199.32
                 210.000 4                                   143.43                                342.76
             4,232.308 4                               2,890.72                            3,233.48

a. 342.76

b. 2890.72

c. (3233.48 - 50 - 1500) = 1683.48

d. 16.83

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A company has an optimal capital structure of 35% debt financing, 15% preferred stock financing, 50%...
A company has an optimal capital structure of 35% debt financing, 15% preferred stock financing, 50%     common equity financing. The tax rate is 25%, the preferred stock dividend is $2 per share, next period’s common stock dividend is $1 per share and is expected to grow by 5% in future years, the price of the company’s common stock is $10, the price of the company’s preferred stock is $25, the bond coupon rate is 4%. Assume that retained earnings...
A company has an optimal capital structure of 35% debt financing, 15% preferred stock financing, 50%...
A company has an optimal capital structure of 35% debt financing, 15% preferred stock financing, 50%     common equity financing. The tax rate is 25%, the preferred stock dividend is $2 per share, next period’s     common stock dividend is $1 per share and is expected to grow by 5% in future years, the price of the     company’s common stock is $10, the price of the company’s preferred stock is $25, the bond coupon rate     is 4%. Assume that retained earnings is...
Given the information below (in millions): Value of operation $2,000 Short-term investments $30 Debt $50 Value...
Given the information below (in millions): Value of operation $2,000 Short-term investments $30 Debt $50 Value of preferred stock $ 5 Number of shares 100 Demonstrate that the stock price will drop by exactly the amount of dividend per share in the model if this firm pays dividend. Assume that the firm uses the its short-term investment account to fund its dividend payment Use the information in above to demonstrate that share per stock will remain unchanged after a stock...
Zacks's target capital structure is 39% long-term debt, 11% preferred stock, and 50% equity. The firm...
Zacks's target capital structure is 39% long-term debt, 11% preferred stock, and 50% equity. The firm has one outstanding 16.92% bond issue that matures on May 13, 2035, makes semiannual payments, and currently sells for $900 per bond. Assume that May 13, 2020, is the settlement date for the bond issue. Odarian's preferred stock pays an annual dividend of $15.32 and currently sells for $93.34. The company's common stock's returns have a covariance of 0.00467206952 with the market's returns. The...
McKinsey and Sons has a target capital structure that calls for 50% debt, 10% preferred stock,...
McKinsey and Sons has a target capital structure that calls for 50% debt, 10% preferred stock, and 40% common equity. The firm can issue new 10 year debt with an annual coupon of 9% for $968.606. The firm is in a 35% tax bracket. The firm's preferred stock sells for $80 per share and pays a dividend of $10 per share; however, the firm will only net $77 per share on the sale of new preferred stock. The firm's common...
Kitty Company began operations in the current year and acquired short-term debt investments in trading securities.
Kitty Company began operations in the current year and acquired short-term debt investments in trading securities. The year-end cost and fair values for its portfolio of these debt investments follow. Portfolio of Trading Securities Cost Fair Value   Tesla Bonds     $ 12,900     $ 9,675     Nike Bonds       21,200       22,260     Ford Bonds       5,300       4,240     Prepare journal entry to record the...
A Company has a total Debt of $500,000 and its Equity is $500,000. Short-term debt is...
A Company has a total Debt of $500,000 and its Equity is $500,000. Short-term debt is 35.00% of its Total Debt and costing 8.0% while its Long-term debt is costing 6.0%. The cost of Equity is found using D1 = $2.00, Po = $20.00 while its growth is 2.0%. Find the Cost of Capital for the Company if the Corporate Tax is 45.00%. Question 7 options: 7.8742% 9.2534% 7.8425% 8.8425% A Company has a Cost of Capital of 25.25%, and...
A Company has a total Debt of $500,000 and its Equity is $500,000. Short-term debt is...
A Company has a total Debt of $500,000 and its Equity is $500,000. Short-term debt is 35.00% of its Total Debt and costing 8.0% while its Long-term debt is costing 6.0%. The cost of Equity is found using D1 = $2.00, Po = $20.00 while its growth is 2.0%. Find the Cost of Capital for the Company if the Corporate Tax is 45.00%. Question 7 options: 7.8742% 9.2534% 7.8425% 8.8425% Question 8 A Company has a Cost of Capital of...
You own 1,500 shares of stock in a company that is 25% debt financed. The stock...
You own 1,500 shares of stock in a company that is 25% debt financed. The stock price is $50 per share. You want to use homemade leverage to unlever your shares to replicate an all-equity capital structure. What amount will you borrow or lend? Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.
Algoma Incorporated has a capital structure which is based on 35 % debt, 15 % preferred stock, and 50 % common stock.
Algoma Incorporated has a capital structure which is based on 35 % debt, 15 % preferred stock, and 50 % common stock. The after-tax cost of debt is 7 %, the cost of preferred is 8 %, and the cost of common stock is 10%. The company is considering a project that is equally as risky as the overall firm. This project has initial costs of $140,000 and cash inflows of $90,000 a year for two years. What is the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT