None Now it's time for you to practice what you've learned.The following table shows projected free cash flows for the next four years for Quick Sky Corp., a company producing wind turbines.YearFree Cash Flow(Millions of dollars)1-1.202-1.303-1.404-1.51After the four year period, Quick Sky is expected to grow at a constant rate of 8% and its WACC is 12%. Quick Sky has $25 million ofdebt and $195 million shares of stock outstanding.Quick Sky's value today is -$26.86million and the price per share today is

Total enterprise value (TEV) is a valuation measurement used to compare companies with varying…

Answered: Now it's time for you to practice what…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
UBTECH Robotics is expected to generate the following free cash flows over the next fiveyears. After which, the free cash flows are expected to grow at the industry average of 3% peryear. Using the discounted free cash flow model and the weighted average cost of capital of11%UBTECH Robotics FCF Forecast ($ Millions)Year199920002001200220032004FCF (Amount in Millions)$55$45$89$102$84$87a. Estimate the enterprise value (V0) of UBTECH Robotics.b. If UBTECH Robotics has excess cash of $5.6 Billion, a debt of $800 Million and 50 Millionshares outstanding, estimate its share price (P0).
Dozier Corporation is a fast-growing supplier of office products. Analyst project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7 percent rate. WACC= 13 percent. Year : 0 1 2 3 FCF(RM Millions): NA - RM 20 RM 30 RM 40 (i) What is Dozier’s terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3) (ii) What is the firm’s value today? (iii) Suppose Dozier has RM 100 million of debt and 10 million shares of stock outstanding. What is your estimate of the price per share?
Consider the case of Flying Cow Aviation Inc.: Flying Cow Aviation Inc. is expected to generate a free cash flow (FCF) of $1,180,000 this year, and the FCF is expected to grow at a rate of 14% over the following two years (FCF22 and FCF33). After the third year, however, the company’s FCFs are expected to grow at a constant rate of 6% per year, which will last forever (FCF4 - ∞4 - ∞). If Flying Cow’s weighted average cost of capital (WACC) is 12%, complete the following table and compute the current value of Flying Cow’s operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year. Year CFtt PV(FCFtt) FCF11 $1,180,000 FCF22 FCF33 FCF44 Horizon Value4- ∞4- ∞ Vopop = Flying Cow’s debt has a market value of $16,875,959, and Flying Cow has no preferred stock in its…
Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 6% rate. Dantzler's WACC is 10%. Year $ 0 1 $ 2 FCF (S millions) - $22 a. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places. million 3 $30 $52 b. What is the firm's market value today? Assume that Dantzler has zero nonoperating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places. million c. Suppose Dantzler has $188.80 million of debt and 23 million shares of stock outstanding. What is your estimate of…
Better Biscuits is planning to make and sell a new cookie and expects the following cash flows at the end of each year: Year CF (in $ million) O 1 2 3 -70 20 30 40 1: If the company requires a return of 8% from this project, what is the NPV (in $ million)?
Imagineering, Inc., is considering an investment in CAD-CAM compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 17 %/year. End of Year Cash Flow (M$) 0 -$12 1 -$1 2 $5 3 $2 4 $5 5 $5 6 $2 7 $5 What is the future worth of this investment?
Imagineering, Inc., is considering an investment in CAD-CAM compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 21 %/year. End of Year Cash Flow (M$) 0 -$12 1 -$1 2 $5 3 $2 4 $5 5 $5 6 $2 7 $5 What is the future worth of this investment? $Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places (in millions of dollars). The tolerance is ±0.2.
A dry cleaning store is expected to make annual cash flows forever. The cost of capital for the store is 14.33 percent. The next annual cash flow is expected in one year from today and all subsequent cash flows are expected to grow annually by 3.35 percent. What is the value of the dry cleaning store if the cash flow in 5 years from today is expected to be $243,000.00? O $1,486,339.98 (plus or minus 10 dollars) O $1,939,822.58 (plus or minus 10 dollars) O $1,132,929.58 (plus or minus 10 dollars) O $2,213,114.75 (plus or minus 10 dollars) O $1,695,743.20 (plus or minus 10 dollars)
UBTECH Robotics is expected to generate the following free cash flows over the next fiveyears. After which, the free cash flows are expected to grow at the industry average of 3% peryear. Using the discounted free cash flow model and the weighted average cost of capital of11%UBTECH Robotics FCF Forecast ($ Millions)Year 1999 2000 2001 2002 2003 2004FCF (Amount in Millions)$55 $45 $89 $102 $84 $87a. Estimate the enterprise value (V0) of UBTECH Robotics.b. If UBTECH Robotics has excess cash of $5.6 Billion, a debt of $800 Million and 50 Millionshares outstanding, estimate its share price (P0).
Fauji Fertilizer Corporation expects to generate following free cashflows in coming 5 years. Year 1 2 3 4 5 FCF (Rs. Million) 51 70 77 72 80 After this time period, the free cashflows will grow constantly at 3% per year. The firm’s cost of capital is 13%. Using the discounted free cashflow model, calculate the following. What is the enterprise value of Fauji Fertilizer Ltd? If Fauji Fertilizer have access cash of Rs. 32 million, debt of Rs. 280 million, and the 40 million shares outstanding and trading in the market, what should be the expected share price of Fauji Fertilizer? c. Suppose that the stocks of Fauji Fertilizer are being sold in the market at Rs. 12 per share. Will you buy that stock? why or why not?
Fauji Fertilizer Corporation expects to generate following free cashflows in coming 5 years. Year 1 2 3 4 5 FCF (Rs. Million) 51 70 77 72 80 After this time period, the free cashflows will grow constantly at 3% per year. The firm’s cost of capital is 13%. Using the discounted free cashflow model, calculate the following. What is the enterprise value of Fauji Fertilizer Ltd? If Fauji Fertilizer have access cash of Rs. 32 million, debt of Rs. 280 million, and the 40 million shares outstanding and trading in the market, what should be the expected share price of Fauji Fertilizer? Suppose that the stocks of Fauji Fertilizer are being sold in the market at Rs. 12 per share. Will you buy that stock? why or why not?

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