In: Finance
Quantitative
Problem 1: Assume today is December 31, 2013. Barrington
Industries expects that its 2014 after-tax operating income [EBIT(1
– T)] will be $430 million and its 2014 depreciation expense will
be $70 million. Barrington's 2014 gross capital expenditures are
expected to be $120 million and the change in its net operating
working capital for 2014 will be $30 million. The firm's free cash
flow is expected to grow at a constant rate of 6.5% annually.
Assume that its free cash flow occurs at the end of each year. The
firm's weighted average cost of capital is 8.1%; the market value
of the company's debt is $2.8 billion; and the company has 170
million shares of common stock outstanding. The firm has no
preferred stock on its balance sheet and has no plans to use it for
future capital budgeting projects. Using the corporate valuation
model, what should be the company's stock price today (December 31,
2013)? Round your answer to the nearest cent. Do not round
intermediate calculations.
$ per share
Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.
Year | 1 | 2 | 3 | 4 | 5 |
FCF | -$22.4 | $37.2 | $43.5 | $53 | $56.1 |
The weighted average
cost of capital is 9%, and the FCFs are expected to continue
growing at a 3% rate after Year 5. The firm has $25 million of
market-value debt, but it has no preferred stock or any other
outstanding claims. There are 18 million shares outstanding. What
is the value of the stock price today (Year 0)? Round your answer
to the nearest cent. Do not round intermediate calculations.
$ per share