Firm Bullcat is an all - equity firm that has expected free cash flows of $10M...

Firm Bullcat is an all - equity firm that has expected free cash flows of $10M per year in perpetuity starting next year.The cost of capital for this unlevered firm is 10 percent. The firm has 5million shares outstanding. Assume a perfect market.

a) Construct the current market value balance sheet.

in million dollars	A		E+L
cash	0	Debt	0
exisiting asset		Equity
Total Asset		Total E=L

b) What is the current share price of Bullcat stock?

Firm Bullcat is also considering a new project. The new project requires an initial investment of $8M and will generate additional cash flow of $1M per year in perpetuity. Assume that the new project is similar to Bullcat’s existing projects.

c) What is the NPV of the new project?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. Suppose a firm, that has a WACC of 11.8%, has expected free cash flows to...

1. Suppose a firm, that has a WACC of 11.8%, has expected free cash flows to the firm from U.S. operation of $4.1 million next year, $4.8 million in year 2, and $5.2 million in year 3. Also suppose the firm expects cash flows from European countries of 1.7 million Euro in year 1, 1.4 million Euro in year2, and 1.2 million Euro in year 3. The firm also expects cash flows from the U.K. of 1.3 million pounds in...

1. Suppose a firm, that has a WACC of 11.8%, has expected free cash flows to...

Carmona Inc. is a firm with no debt, with expected free cash flows to the firm...

Carmona Inc. is a firm with no debt, with expected free cash flows to the firm of $10 million next year growing at 2% a year in perpetuity. The firm has no cash and its current market capitalization is $200 million. Assuming that the company is correctly priced right now, estimate the value of the firm if it decides to borrow money at 4% (pre-tax) and move to a debt to capital (D/ (D+E)) ratio of 20%. (You can assume...

Your all-equity firm generates $60M per year in perpetual free cash flows. The firm pays out...

Your all-equity firm generates $60M per year in perpetual free cash flows. The firm pays out the entire free cash flows to stockholders each year and is about to pay the $60M generated this year. Analysis of comparable firms tells you that your asset cost of capital is 15 percent. Assume that there are 1M shares outstanding and the capital market is perfect. a)What is the price per share for this firm att=0 just before the firm paysout the $60M?This...

What are free cash flows for a firm? Describe the steps of estimating free cash flows...

What are free cash flows for a firm? Describe the steps of estimating free cash flows of a firm. What does it mean when a firms cash flow is negative? Explain with examples

You own all of the equity in a debt-free app development business that generates cash flows...

You own all of the equity in a debt-free app development business that generates cash flows of $590,000 each year in perpetuity. The cost of assets, kAssets is 10 percent and the tax rate is 20 percent. What is the value of your all-equity firm? Excel Template Value of firm $ If you decide to replace $1 million of equity by borrowing $1 million at an interest rate of 6 percent how much would the value of the firm increase?...

You own all of the equity in a debt-free app development business that generates cash flows...

You own all of the equity in a debt-free app development business that generates cash flows of $570,000 each year in perpetuity. The cost of assets, kAssets is 12 percent and the tax rate is 20 percent. If you decide to replace $1 million of equity by borrowing $1 million at an interest rate of 5 percent. What would the kcs and WACC for your business be before and after the proposed financial restructuring? Use M&M Proposition 2 with taxes,...

Richter Manufacturing has a 7% unlevered cost of equity. Richterforecasts the following free cash flows...

Richter Manufacturing has a 7% unlevered cost of equity. Richter forecasts the following free cash flows (FCFs), which are expected to grow at a constant 2% rate after Year 3.Year 1Year 2Year 3FCF$800$825$870What is the horizon value of the unlevered operations? Do not round intermediate calculations. Round your answer to the nearest dollar.$ What is the total value of unlevered operations at Year 0? Do not round intermediate calculations. Round your answer to the nearest dollar.

Problem 10 A firm has market value of equity of $10M and market value of debt...

Problem 10 A firm has market value of equity of $10M and market value of debt of $10M. Yield to maturity of its debt is 10%, while the expected return of its stock is 20%. Assume that the tax rate is 0%. The WACC is given by: A) 8% B) 12% C) 15% D) 18% E) 21%

A company has expected free cash flows of $1.45 million, $2.93 million, and $3.2 million in...

A company has expected free cash flows of $1.45 million, $2.93 million, and $3.2 million in the next three years. Beginning in Year 4, the expected cash flows will grow (or decrease) by -5% in perpetuity. Measure the value of this company as of today using both a 10% and 12% discount rate.

Subjects