Question
In: Finance
Ladwig Incorporated is considering whether to acquire Shocker Enterprises (SE). Estimate the per-share value of SE...
Ladwig Incorporated is considering whether to acquire Shocker Enterprises (SE). Estimate the per-share value of SE using a discounted FCF approach and the following data: • Debt: $75 million
• Excess cash: $10 million
• Shares outstanding: 40 million
• Expected FCF: $20 million in each of the next five years, growing after that by 4 percent per year for the foreseeable future
• Weighted average cost of capital: 15 percent
Solutions
Expert Solution
| WACC= | 15.00% | ||||||
| Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
| 1 | 0 | 0.00% | 20 | 20 | 1.15 | 17.3913 | |
| 2 | 20 | 0.00% | 20 | 20 | 1.3225 | 15.12287 | |
| 3 | 20 | 0.00% | 20 | 20 | 1.520875 | 13.15032 | |
| 4 | 20 | 0.00% | 20 | 20 | 1.74900625 | 11.43506 | |
| 5 | 20 | 0.00% | 20 | 189.091 | 209.091 | 2.011357188 | 103.95518 |
| Long term growth rate (given)= | 4.00% | Value of Enterprise = | Sum of discounted value = | 161.05 |
| Where | |||
| Total value = FCF + horizon value (only for last year) | |||
| Horizon value = FCF current year 5 *(1+long term growth rate)/( WACC-long term growth rate) | |||
| Discount factor=(1+ WACC)^corresponding period | |||
| Discounted value=total value/discount factor | |||
| Enterprise value = Equity value+ MV of debt |
| - Cash & Cash Equivalents |
| 161.05 = Equity value+75-10 |
| Equity value = 96.05 |
| share price = equity value/number of shares |
| share price = 96.05/40 |
| share price = 2.4 |
jeff jeffy answered 1 year agoRelated Solutions
Your task is to estimate equity value per share for Company C. - Earnings per share...
Your task is to estimate equity value per share for
Company C.
- Earnings per share in year zero is $27.6.
- Company C pays dividends once per year at the end of
each year. The next dividend will be paid one year from
today.
- Retention rates and returns on
investment.
> In years 0 to 6, Company C is
projected to reinvest 72% of its earnings back into the firm. The
return on this investment is projected to...
Book value per share may not approximate market value per share because: a. the book value...
Book value per share may not approximate market value per share
because:
a.
the book value excludes common equity.
b.
book values are based on replacement costs
c.
book value is related to accounting values and market value is
related to the future potential as seen by investors.
d.
investors do not understand book value.
Book value per share may not approximate market value per share because: a. the book value...
Book value per share may not approximate market value per share
because:
a.
the book value excludes common equity.
b.
book values are based on replacement costs
c.
book value is related to accounting values and market value is
related to the future potential as seen by investors.
d.
investors do not understand book value.
The owner of a greenhouse and nursery is considering whether to acquire additional land to grow...
The owner of a greenhouse and nursery is considering whether to
acquire additional land to grow a new variety of rosebush. She can
either acquire a small garden at $7000 and can produce up to 4,000
rosebushes or a large garden at $10,000 and can produce up to 8,000
rosebushes. The owner could sell each rosebush for $5, and per-unit
variable cost would be $3.
a) What would the profit be if she were to produce and sell
6,000 rosebushes?...
estimate= 0.46 SE= 0.023 X=210 n=461 critical value= 1.96 95% confidence intravel what is the: estimate...
estimate= 0.46
SE= 0.023
X=210
n=461
critical value= 1.96
95% confidence intravel
what is the:
estimate of error (plus and minus)
lower limit
upper limit
Phantom enterprises' shares are trading at a price of $50 per share.
Phantom enterprises' shares are trading at a price of $50 per
share. We know that Phantom's Price-Earnings ratio is 20x and the
number of shares outstanding amounts to 10
million. Estimate what Phantom's earnings?a.$2.5 millionb.$25.0 millionc.$10.0 milliond.$100.0 million
QPM has sales per share of $48.08, earnings per share of $7.58, book value per share...
QPM has sales per share of $48.08, earnings per share of $7.58,
book value per share of $20.59, and dividends per share of $3.84.
You have determined that relevant market multiples for QPM would be
a price/sales ratio of 3.6x, a P/E ratio of 22.8x, a price/book
ratio of 8.7x, and a dividend yield of 2.22%. You calculate a QPM
price per share based on each ratio, and then estimate the value as
the simple average of these four prices....
Carson Auto is currently considering whether or not to acquire a new machine for its manufacturing...
Carson Auto is currently considering whether or not to acquire a
new machine for its manufacturing operation. The machine costs
$700,000 and will be depreciated using straight-line depreciation
toward a zero salvage value over the next five years. During the
life of the machine, no new capital expenditures or investments in
working capital will be required. The new handler is expected to
save Carson $250,000 per year before taxes of 30%. Carson's CFO
recently estimated the rm's opportunity cost of...
Dvorak Enterprises is expected to pay a stable dividend of $5 per share per year for...
Dvorak Enterprises is expected to pay a stable dividend of $5
per share per year for the next 10 years. After that, investors
anticipate that the dividends will grow at a constant rate of 3.1
percent per year indefinitely. If the required rate of return on
this stock is 10 percent, what is the fair market value of a share
of Dvorak?
Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and...
Just Right Incorporated is considering the option of an extra
dividend versus a share repurchase and the impact of both decisions
on the firm. Just Right plans to spend $85,000 in respect of both
scenarios. Just Right’s current earnings are $2.10 per share, and
the stock currently sells for $45 per share. Just Right currently
has 5,000 shares outstanding.
You own one share of stock in this company.
If the company issues the dividend, what will your total
investment be...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Enumerations Create an advanced enumeration to represent months (JANUARY – DECEMBER) called enuMonths Add internal properties...
- What is the minimum size of the automorphism group of a simple directed graph having more...
- The birthday paradox says that the probability (chance) that two people in a room will have...
- #include <iostream> #include "lib.hpp" using namespace std; int main() { // declare the bool bool...
- Why do we compare means instead of individual scores? for comparing average SAT test scores across...
- NPV Your division is considering two projects with the following cash flows (in millions): 0...
- The equivalent synchronous impedance of a 25kVA, 400V three-phase Y-connected synchronous generator is 0.05 + j1.6...
ADVERTISEMENT