Free cash flow valuation   Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public​ offering, managers at Nabor have decided to make their own estimate of the​ firm's common stock value. The​ firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.

The​ firm's weighted average cost of capital is

13 %

and it has

$2,480,000

of debt at market value and

$500,000

of preferred stock at its assumed market value. The estimated free cash flows over the next 5​ years, 2016 through​2020, are given in the​ table,

. Beyond 2020 to​ infinity, the firm expects its free cash flow to grow by

5 %

annually.

a.  Estimate the value of Nabor​ Industries' entire company by using the free cash flow valuation

model.

a.  The value of Nabor​ Industries' entire company is

​$ 4,969,043 nothing

b.  Use your finding in part

a​,

along with the data provided​ above, to find Nabor​ Industries' common stock value.

b.  The value of Nabor​ Industries' common stock is

​$ ? nothing.

​(Round to the nearest​ dollar.)

Indigo Company began operations on 1/1/20 and produces tumbling mats and rebound mats for cheerleading. Both types of mats are manufactured from a joint process. During January 2020, the company incurred joint production costs of $89,500 and produced 2,000 tumbling mats and 500 rebound mats. Indigo believes the tumbling mats will require separate costs past the split-off point of $14.00 per unit, and the company believes it will be able to sell the tumbling mats for $150.00 per unit. Indigo believes the rebound mats will require separate costs past the split-off point of $10.00 per unit, and the company believes it will be able to sell the rebound mats for $100.00 per unit.

1. What amount of joint costs should be allocated to each product using the physical units method?
2. What amount of joint costs should be allocated to each product using the constant gross margin percentage method?

Question 3

At a local university, a sample of 64 evening students was selected in order to determine whether the average age of the evening students is significantly different from 21. The average age of the students in the sample was 23 years. The population standard deviation is known to be 4.5 years. Determine whether or not the average age of the evening students is significantly different from 21. Use a 0.05 level of significance

A private college has several study programs. Recently there was a publication from BPS stating that the income of the middle class has increased by 10% this year. Although happy with the improving condition, the university is concerned that the impact of this change on applicants who will continue to the tertiary institution is estimated to decrease. From these concerns, what can we conclude about the study programs at these colleges? Complete the answers with graphic explanations.

Understanding Finance (30%):

The CEO needs you to explain the following concepts which deeply trouble him:

a. What is advantage and disadvantages between raising money from debt and equity?
b. What is purpose of Treasury shares?
c. Explain the benefits and downside of different depreciation policies such as straight line and declining method?
d. Explain what is financial leverage and its advantage and disadvantage.

CONTINUOUS CASE CHAPTER FIVE

The world has been hit by the Coronavirus that is believed to have originated in China. Suppose

you, are the CEO and have set up an automobile factory in the affected area (in China). How

would you deal with the ethical issues that might arise from continuing to operate the factory?

What do you think would be your responsibility to your employees, customers and to society?

The comparative statements of Wahlberg Company are presented here.

All sales were on account. Net cash provided by operating activities for 2020 was $216,000. Capital expenditures were $132,000, and cash dividends were $79,678.

Compute the following ratios for 2020. (Round Earnings per share, Current ratio and Asset turnover to 2 decimal places, e.g. 1.65 or 1.65:1, and all other answers to 1 decimal place, e.g. 6.8 or 6.8%. Use 365 days for calculation.)

After reading the following case, please answer the following questions:

1. Why does agency problem arise?

2. What is the cost of agency problem?

3. How to minimize the agency problem?

CASE STUDY ON AGENCY PROBLEM ABC

Company started operations in early 1970. The company produces specialized items for manufacturing cars. Most of the raw materials used are imported from Brazil because the cost is low and the labor is very cheap. The CEO for ABC Company, Mr. Rodriguez, makes every attempt to keep the cost at the lowest. From 1970 to 2000 net income has increased at a rate of at least 25% per year. There are around 20,000 shareholders that hold ABC Company shares. Shareholders are very happy with the company’s performance. Mr. Rodriguez always held a meeting with Board of Directors to inform them of any decision involve in the company. As such the BOD is very happy with the company performance and Mr. Rodriguez managing style. Every year, the staff received cash bonus of around 2 to 3 times of their salary and Mr. Rodriguez received many incentives from the company including cars, houses and cash. However, at the end of 2001, the cost of raw material increases because of the attack of SARS virus in Brazil. The sales for the year were also reduced. By September 2001, Mr. Rodriguez held an emergency meeting with all the staffs. It is estimated that the income for the year will be reduced. By January 2002, after the preparation of the financial statements, net income showed a decreased of around 45% from last year. Mr. Rodriguez demanded the treasures and the controller to do something with the figures. During the BOD meeting in April 2002, the company announced a 15%increase in the income and declared a dividend of around 5% higher than last year. The shareholders reacted positively to the announcement and started buying more shares of the company. For the next five years, the company continue to decrease in income but providing a good news to the shareholders and giving shareholders higher profit. In 2008, the BOD requested for the company to change the auditor for the company. After the auditing process, the new auditor revealed that the company is in the state of bankruptcy and there are zero balance cash in the bank account. One month after that the company was forced to closed down. Shareholder were surprised with the announcement and lost all their money. The employees lost their job and many creditors couldn’t claim their money. Shareholders are currently suing Mr. Rodriguez and the company for their losses.

Case Study

Mrs. Smith is 82 years old and is diagnosed with hypertension, diabetes, and congestive heart failure. Her two children live in California, while she lives in North Carolina in a small family home on 10 acres of land in the Blue Ridge Mountains. Mrs. Smith has been in the hospital four times in the last year due to congestive heart failure. As her eyesight and mobility get worse with age, she has found it a challenge to stay on her medical plan and to do her shopping for the right foods she knows she should be eating. Mrs. Smith’s health plan, Purple Cross of North Carolina, assigned a nurse case manager to address her situation. Purple Cross provided a digital scale and a remote monitoring device that recorded Mrs. Smith’s condition every day by uploading her weight and transmitting the answers to a series of questions on a touch screen kiosk. The case manager also coordinated delivery of Meals on Wheels, providing low-sodium, diabetic-compliant dinners to Mrs. Smith on an ongoing basis. The case manager calls Mrs. Smith twice a week, taking the time to educate her about her medications, her activities, and the disease-specific elements that will keep her healthy and out of the hospital. When the case manager identifies that Mrs. Smith can no longer organize her daily medications, a digital medication dispenser will be provided that will keep her on her medication regimen. The medication dispenser will be preloaded with Mrs. Smith’s medications and will issue a subtle doorbell tone when it is time to take them. With the combination of remote and real-time (telephonic) support persons and technologies, Mrs. Smith can remain in her home and avoid further inpatient admissions.

To complete this assignment:

Read the case study above.

Assume the role as the Public Relations Director for Purple Cross of North Carolina.The CEO directs you to interview the Telehealth Director regarding the use of Telehealth with Mrs. Smith. The CEO directs you to create one thought-provoking question for each of the following topics:

Meeting the health needs of Mrs. Smith

Decision-making process for technology selected for Mrs. Smith

Benefits and risks in using Telehealth technology for Mrs. Smith

Cost and staff involved in using Telehealth technology for Mrs. Smith

Part A) For investment perspective you are analyzing the company which is working under the Fertilizer Sector Engro Fertilizer (EFERT). A long time ago, it was considered as one of the best company by investors due to high dividend payouts though investors are always willing to invest in this company. Two years ago, position of this company’s cashflows become worst which impact the overall profitability on the company and the financial health amid ongoing situation of worst financial board of directors taken decision to cut down the dividends payments to the shareholder and share price also gradually declining in the market. After recent financial results, board of directors showed their positive expectations for revival of the company where new strategies implement to boost the sales and re-gain its market share. You are again want to investment in this company after analyzing the historical dividends payout patterns. Which are mentioned below:

Further, you gathered the information pertaining to sales growth expectations and net margins which are analysis consensus for next 5 years.

Currently company’s sales for the year ended FY 2020 stood at 89.54mn. You will apply the dividend discount model to value the company after calculation of the dividends properly. For calculation of cost of equity you can use the CAPM model (hint: use risk free rate as a 5-years PIB yield and Risk premium upto 7% while beta can be calculated through statistical variance methodology as explained in the class). This calculated cost of equity you can input in your formula to find out the intrinsic value and use sustainable growth rate 5.5% for dividends growth). (at least 250 words write up required)

Part B) This party is linked with part A, use the data from the part A and sensitize the intrinsic value by changes in cost of equity and growth projections so how it will impact on the company’s intrinsic value.

Instructions:

You are required to calculate the intrinsic value of each part and then compared the calculated prices along with logical reason.