Question

In: Finance

The following company is expected to grow rapidly for the first four year. The EPS is...

The following company is expected to grow rapidly for the first four year. The EPS is expected to grow at 30, 18, 12, and 9 percent, respectively for the first four years. After the fast growth for the first four years the growth slows down to 7 percent rate. The company is expected to keep this growth for the long-term. The company’s initial earnings per share EPS is $2.4. The required net capital expenditure per share for the next five years are $3, $2.5, $2, $1.5, and $1. The required net working capital expenditure is the half of fixed capital expenditure for each year The company will borrow as much as the 30 percent of total capital investment required (fixed capital plus working capital) for each year The cost of equity is assumed to be flat 10.4 percent for the entire period. P/E ratio of similar companies is 30. Question: Estimate the free cash flow to equity holders (FCFE) for the first five years What is the per-share value of this company? (Use free cash flow valuation).

Solutions

Expert Solution


Related Solutions

Bruin Inc. has recently announced a $2.2 EPS. Earnings are expected to grow at 5 percent...
Bruin Inc. has recently announced a $2.2 EPS. Earnings are expected to grow at 5 percent per year forever. The company will not pay dividends on the stock over the next 6 years. However, it will pay 30% of its earnings as dividend starting in year 7. The payout ratio will remain at 30% forever. Earnings will continue to grow at the same 5% rate. If the required rate of return on this stock is 15 percent, what is the...
VolCal in at the end of the year is expected to have EPS of $5 the...
VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 12% currently pay out of all earnings as a divident using the assumption of perfect capital markets a. 43.7550 b. 58.8235 c.41.666 d.50.2575 e.40.0000 f.45.4545
VolCal in at the end of the year is expected to have EPS of $5 the...
VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets using the dividend discount model what is the firms expected stock price today? a. 43.7750 b.58.8835 c.41.666 d.50.2575 e.40.0000 f.45.4545 g. 0% h. 2% I 1% j. 3% k.60.2675
VolCal in at the end of the year is expected to have EPS of $5 the...
VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets what is the firms current growth rate? a. 43.7750 b.58.8835 c.41.666 d.50.2575 e.40.0000 f.45.4545 g. 0% h. 2% I 1% j. 3% k.60.2675
VolCal in at the end of the year is expected to have EPS of $5 the...
VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets using the dividend discount model, if the firm decides to payout 30% of earnings as a dividend the firms return on investment is 13.5% what will be the new stock price? a. 43.7750 b.58.8835 c.41.666 d.50.2575 e.40.0000 f.45.4545 g. 0%...
V VolCal in at the end of the year is expected to have EPS of $5...
V VolCal in at the end of the year is expected to have EPS of $5 the firm has a cost of capital of 19% currently pay out of all earnings as a divident using the assumption of perfect capital markets if the firm decides to payout 60% of earnings and the firms return on investments is 15% what firm value will the company have? a. 43.7750 b.58.8835 c.41.666 d.50.2575 e.40.0000 f.45.4545 g. 0% h. 2% I 1% j. 3%...
From the following observations of annual EPS for a company, what is the first-order autocorrelation? Time...
From the following observations of annual EPS for a company, what is the first-order autocorrelation? Time EPS 1 3.48 2 3.23 3 4.01 4 4.58 5 5.98 6 5 Note that using the CORREL() spreadsheet function will not produce the correct result. Though for a large sample it'll be really close, for a small sample such as this one the difference can be significant. This is because for the autocorrelation you use the variance of the full sample in the...
From the following observations of annual EPS for a company, what is the first-order autocorrelation? Time...
From the following observations of annual EPS for a company, what is the first-order autocorrelation? Time EPS 1 3.06 2 3.27 3 4.44 4 4.07 5 5.26 6 5.59 Note that using the CORREL() spreadsheet function will not produce the correct result. Though for a large sample it'll be really close, for a small sample such as this one the difference can be significant. This is because for the autocorrelation you use the variance of the full sample in the...
Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at...
Company ABC's earnings per share this year are $5. ABC's earnings are expected to grow at rate g every year. The return that investors expect on ABC is 10%. ABC's current (ex-dividend) stock price is $80. ABC's payout ratio is 0.4. (a) Determine rate g. (b) Determine the present value of ABC's growth opportunities.
Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year.
  Company Z's earnings and dividends per share are expected to grow indefinitely by 2% a year. If next year's dividend is $7 and the market capitalization rate is 11%, what is the current stock price?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT