Pls help stepwise through it Huxley Building Supplies' last free cash flow was $1.75 million. Its free cash flowgrowth rate is expected to be 25% per year for the next 2 years, after which freecash flows are expected to grow at a rate of 6% forever. Its weighted average cost ofcapital is 12%. Huxley has $5 million in non-operating assets, $5 million in debt, $2million in preferred stock, and has 1 million shares outstanding. What is the bestestimate of the current intrinsic value of common stock?$44.92$40.64$42.80$41.71$39.58

Here,Current Free Cash Flow $ 1,750,000.00Growth Rate for Next 2 years25%Growth Rate after 2…

Answered: Huxley Building Supplies' last free…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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XYZ has an expected Free Cash Flow of $109M next year and will remain the same in perpetuity. It has a WACC of 8%. The Company has Short term investment amounting to $104M. The Company has Preferred stock of $50M, Debt of $97M and 110M of common stock outstanding. What is the intrinsic value of its common stock?
Vrooom is a car dealership that determined the present value of its free cash flow to common equity for the first five years to be $272,000 and the present value in its terminal year to be $228,000. The expected growth rate is 2.2% and the firm’s cost of common equity is 4.2%. What is the terminal value of the dealership?
Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. Required: Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow morning
Demon Corporation expects to generate free-cash flows of $200,000 per year for each of the next five years. Beyond the five years and into perpetuity, free cash flows are expected to grow at a constant rate of 5 percent per year forever. The firm's weighted average cost of capital is 15 percent. The firm’s market value of debt is $500,000 and there is no preferred stock. What is the market value of Demon Cop. equity?
Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. a) Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. b) Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow c) Blue Valley Ltd, a subsidiary of Green Forest Ltd will go under liquidation procedures due to the recent global economic recession in one-year time. The company just announced today it will be paying an annual dividend totally $7.5 million this year and $12.5 million one year from now as a…
Organica Ltd. generates $350,000 cash flow each year. The cost of equity capital is 18% and the company has no debt outstanding. Organica would like to buy back $ 950,000 of its equity by borrowing the same amount at 12% per year. Assume that the debt will continue for an indefinite period and Modigliani and Miller proposition 1 holds, what is the cost of equity capital after the change in capital structure?
Sora Industries has 62 million outstanding shares, $124 million in debt, $47 million in cash, and the following projected free cash flow for the next four years: a. Suppose Sora's revenue and free cash flow are expected to grow at a 3.6% rate beyond year four. If Sora's weighted average cost of capital is 14.0%, what is the value of Sora stock based on this information? b. Sora's cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70% of sales, how would the estimate of the stock's value change? c. Return to the assumptions of part (a) and suppose Sora can maintain its cost of goods sold at 67% of sales. However, the firm reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. What stock price would you estimate now? (Assume no other expenses, except taxes, are affected.) d. Sora's net working capital needs were estimated to be 18% of sales (their current level in year zero). If Sora can reduce this requirement…
Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.
Sims Manufacturing is expected to generate $180 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Sims has no debt or preferred stock and its required rate of return is 11%. If Sims has 50 million shares of common stock outstanding, what is the stocks value per share?
The net income of Steel City Corporation is $90,000. The company has 20,000 outstanding shares, and a 100 percent payout policy. The expected value of the firm one year from now is $1,780,000. The appropriate discount rate is 11 percent, and there are no taxes. a. What is the current value of the company assuming the current dividend has not yet been paid? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the ex-dividend price of the company’s stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's stock price. They proposed that the company sell enough new shares to finance a dividend of $5.70. c-1. Calculate the value of the company under this proposal. (Do not round…
Aluworks Co. is expected to pay a $21.00 dividend next year. The dividend will decline by 10 percent annually for the following three years. In year 5, Aluworks will sell off assets worth $100 per share. The year 5 dividend, which includes a distribution of some of the proceeds of the asset sale, is expected to be $60. In year 6, the dividend is expected to decrease to $40 and will be maintained at $40 for one additional year. The dividend is then expected to grow by 5 percent annually thereafter. If the required rate of return is 12 percent, what is the value of one share of Aluworks?
The net income of Steel City Corporation is $90,000. The company has 20,000 outstanding shares, and a 100 percent payout policy. The expected value of the firm one year from now is $1,780,000. The appropriate discount rate is 11 percent, and there are no taxes. a. What is the current value of the company assuming the current dividend has not yet been paid? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the ex-dividend price of the company’s stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's stock price. They proposed that the company sell enough new shares to finance a dividend of $5.70. c-1. Calculate the value of the company under this proposal. (Do not round…

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