Question
In: Finance
1. Financial Corporation plans to acquire Great Western Inc. In the current year the free cash...
1. Financial Corporation plans to acquire Great Western Inc. In the current year the free cash flow to firm (FCFF) of Great Western Inc is $20 million. It is projected to grow at 20% per year for the next five years. After the first five years it is expected to grow at a more modest 10% per year. The Financial Corporation estimates that the target firm’s cost of capital will be 20% during the next five years and then will drop to 15% after the fifth year. Calculate the enterprise value of Great Western Inc. Assume Great Western Inc has no non-operating assets, non-operating liabilities and cash. Show all your workings.
2. What are the primary objectives of leveraged recapitalization?
Solutions
Expert Solution
PV of Free Cash Flow = Free Cash Flow / (1+Cost of Capital)n
Enterprise Value = Sum of Present value of free cash flow
jeff jeffy answered 1 year agoRelated Solutions
Financial Corporation plans to acquire Great Western Inc and wants to know the fair value per...
Financial Corporation plans to acquire Great Western Inc and
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current year, the free cash flow to firm (FCFF) of Great Western
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the next five years. After the first five years, it is expected to
grow at a more modest 5% per year. The Financial Corporation
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If the current 1-year risk free rate in US is 6%, the current
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and the current spot rate between USD and CHF is CHF
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(1) If interest rate parity holds, what should be the
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If the current 1-year risk free rate in US is 6%, the current 1-year risk free...
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Timpanogos Inc. is an accrual-method calendar-year corporation. For the current year 2017, it reported financial statement...
Timpanogos Inc. is an accrual-method calendar-year corporation.
For the current year 2017, it reported financial statement income
after taxes of $1,552,000. Timpanogos provided the following
information relating to its current year activities:
Life insurance proceeds as a result of CEO’s death $ 200,000
Revenue from sales (for both book and tax purposes)
2,000,000
Premiums paid on the key-person life insurance policies (the
policies have no cash surrender value) 21,000
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Interest paid...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
11,000
$
10,000
Operating costs excluding depreciation
9,566
8,676
Depreciation and amortization
410
360
Earnings before interest and taxes
$
1,024
$
964
Less interest
220
200
Pre-tax income
$
804
$
764
Taxes (25%)
201
191
Net income available to common stockholders
$
603
$
573
Common dividends
$
202
$
200
Rhodes...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
11,000
$
10,000
Operating costs excluding depreciation
9,536
8,684
Depreciation and amortization
340
320
Earnings before interest and taxes
$
1,124
$
996
Less interest
260
200
Pre-tax income
$
864
$
796
Taxes (25%)
216
199
Net income available to common stockholders
$
648
$
597
Common dividends
$
205
$
200
Rhodes...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
13,000
$
11,000
Operating costs excluding depreciation
11,600
9,730
Depreciation and amortization
340
330
Earnings before interest and taxes
$
1,060
$
940
Less interest
140
100
Pre-tax income
$
920
$
840
Taxes (25%)
230
210
Net income available to common stockholders
$
690
$
630
Common dividends
$
205
$
200
Rhodes...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
12,000
$
11,000
Operating costs excluding depreciation
10,600
9,722
Depreciation and amortization
380
350
Earnings before interest and taxes
$
1,020
$
928
Less interest
140
100
Pre-tax income
$
880
$
828
Taxes (25%)
220
207
Net income available to common stockholders
$
660
$
621
Common dividends
$
202
$
200
Rhodes...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
12,000
$
10,000
Operating costs excluding depreciation
10,524
8,658
Depreciation and amortization
400
370
Earnings before interest and taxes
$
1,076
$
972
Less interest
120
100
Pre-tax income
$
956
$
872
Taxes (25%)
239
218
Net income available to common stockholders
$
717
$
654
Common dividends
$
203
$
200
Rhodes...
Free Cash Flows Rhodes Corporation’s financial statements are shown below. Rhodes Corporation: Income Statements for Year...
Free Cash Flows
Rhodes Corporation’s financial statements are shown below.
Rhodes Corporation: Income Statements for Year Ending
December 31
(Millions of Dollars)
2020
2019
Sales
$
11,000
$
10,000
Operating costs excluding depreciation
9,618
8,742
Depreciation and amortization
350
330
Earnings before interest and taxes
$
1,032
$
928
Less interest
240
200
Pre-tax income
$
792
$
728
Taxes (25%)
198
182
Net income available to common stockholders
$
594
$
546
Common dividends
$
205
$
200
Rhodes...
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