You are purchasing a company that has projected cash flows after taxes of $15,000, $18,000, $22,000,...

You are purchasing a company that has projected cash flows after taxes of $15,000, $18,000, $22,000, $35,000, and $21,000 for Years 1 through 5. In Year 3, you will incur maintenance costs of $50,000. From Years 6 through 10, you expect cash flows to be steady at $25,000 per year. At Year 10, you can sell the firm for $500,000. You will pay dividends out at a growing rate of 2% each year and you will announce a $1.50/share dividend to be paid at the end of the first year. You have 1,000 shares outstanding. Assume a discount rate of 7% What is the maximum amount you should pay for the company? Explain your reasoning for your final valuation and any decisions in made in your calculations. Do your analysis in Excel

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Danielsen's has 15,000 shares of stock outstanding and projected annual free cash flows of $48,200, $57,900,...

Danielsen's has 15,000 shares of stock outstanding and projected annual free cash flows of $48,200, $57,900, $71,300, and $72,500 for the next four years, respectively. After that, the cash flows are expected to increase at a constant annual rate of 1.6 percent. What is the current value per share of stock at a discount rate of 15.4 percent?

XYZ Skilled Nursing Facility wants to buy equipment for $100,000, with projected cash flows of $22,000...

XYZ Skilled Nursing Facility wants to buy equipment for $100,000, with projected cash flows of $22,000 per year during the equipment’s five-year useful life.What is the net present value at 10 percent with a salvage value of $10,000?

You are running a small manufacturing process that has projected cash flows of -$13,000 in year...

You are running a small manufacturing process that has projected cash flows of -$13,000 in year one, $4,000 in year 2, $5000 in year 3, -$3,000 in year 4, $6,000 in year 5, and $7,000 in year 6, what is the interest rate that gives a net present value of zero. For information, In year four, you were required to make some upgrades to the process and that forced the negative $3,000. (Hint: Take the cash flow at the end...

10-10. Project A has a cost of $22,000 and is expected to produce benefits (cash flows)...

10-10. Project A has a cost of $22,000 and is expected to produce benefits (cash flows) of $7,000 per year for 5 years. Project B costs $70,000 and is expected to produce cash flows of $20,000 per year for 5 years. Calculate the two projects' NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 10%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?

Graham Potato Company has projected sales of $20,400 in September, $22,000 in October, $30,400 in November,...

Graham Potato Company has projected sales of $20,400 in September, $22,000 in October, $30,400 in November, and $26,400 in December. Of the company's sales, 30 percent are paid for by cash and 70 percent are sold on credit. Experience shows that 40 percent of accounts receivable are paid in the month after the sale, while the remaining 60 percent are paid two months after. Determine collections for November and December. Also assume Graham’s cash payments for November and December...

Britney Javelin Company is considering two investments, both of which cost $22,000. The cash flows are...

Britney Javelin Company is considering two investments, both of which cost $22,000. The cash flows are as follows: Use Appendix B and Appendix D. Year Project M Project N 1 $8,000 $7,000 2 12,000 11,500 3 8,000 13,000 a. Calculate the payback period for project M and project N. (Round the final answers to 2 decimal places.) Payback period Project M years Project N years b-1. Calculate the NPV for project M and project N. Assume a cost...

Project A has an initial cost of $211,400 and projected cash flows of $46,200, $64,900, and...

Project A has an initial cost of $211,400 and projected cash flows of $46,200, $64,900, and $135,800 for Years 1 to 3, respectively. Project B has an initial cost of $187,900 and projected cash flows of $43,200, $59,700, and $125,600 for Years 1 to 3, respectively. What is the incremental IRRA–B of these two mutually exclusive projects?

A company is projected to generate free cash flows of $100 million per year for the...

A company is projected to generate free cash flows of $100 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 3.0% rate in perpetuity. The company's cost of capital is 7.0%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).

A company is projected to generate free cash flows of $164 million per year for the...

A company is projected to generate free cash flows of $164 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 2.0% rate in perpetuity. The company's cost of capital is 10.2%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).

A company is projected to generate free cash flows of $47 million per year for the...

A company is projected to generate free cash flows of $47 million per year for the next two years, after which it is projected grow at a steady rate in perpetuity. The company's cost of capital is 11.2%. It has $24 million worth of debt and $6 million of cash. There are 14 million shares outstanding. If the exit multiple for this company's free cash flows (EV/FCFF) is 14, what's your estimate of the company's stock price? Round to one...

Subjects