Preview

Fin 515

Satisfactory Essays
Open Document
Open Document
270 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Fin 515
FIN 515

14-1 Residual Distribution Model
Axel Telecommunications has a target capital structure that consists of 70% debt and 30% equity. The company anticipates that its capital budget for the upcoming year will be $3 million. If Axel reports net income of $2 million and follows a residual distribution model with all distributions as dividends, what will be its dividend payout ratio?

$410,000 (3000000/5000000)*1000000 – (500000/5000000)*1000000 - .05(6000000)(1-.07) .6*1000000 - .1*1000000 – 300000*.3 600000-100000-90000 =410000

(13-2) Value of Operations of Constant Growth Firm
EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value o $6,000,000 (400000*1.05)/(.12-.05)

(13-3) Horizon Value
Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012? Actual Projected
2010 2011 2012 2013
$606.82 $667.50 $707.55 $750.00

$15,000 (in millions) (750-707.55)/707.55=6% 750/(11-6)

(13-4) EROIC and MVA of Constant Growth Firm
A company has capital of $200 million. It has an EROIC of 9%, forecasted constant growth of 5%, and a WACC of 10%. What is its value of operations? What is its intrinsic MVA?

VOA 160,000,000 200+[200*(.09-.10)]/(.10-.05) 200+ -40

MVA -40,000,000
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Better Essays

    ACCT614-1403A-02 Applied Managerial Accounting
    • 1228 Words
    • 4 Pages

    ACCT614-1403A-02 Applied Managerial Accounting

    The focus of EEC’s investment of the purchasing of the supplier is to cut down on the cost expenditures of the company. The primary board members and investors anticipate in the timeframe the fifth of to save financially in revenue $600,000 per annum this will accumulate $9 million in net in the timeframe of that 15 years. 14% of that investment and consumption cost will be attributed out of $9 million net, which adds up to sum of $3 million. The president of the company asked me to give an analysis in the possibilities foreseen in the investment what would be the Net Present Value, along with the Internal Rate of Return, and the payback of the investment.…

    • 1228 Words
    • 4 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Finance 3301 questions
    • 326 Words
    • 2 Pages

    Finance 3301 questions

    Tony Company’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Tony Company`s tax rate is 40%, rd =6%,rPS =5%,andrs =10%.If Tony Company get capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?…

    • 326 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    FIN/571 Final Exam answers
    • 1006 Words
    • 5 Pages

    FIN/571 Final Exam answers

    10. Ajax Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company's opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)…

    • 1006 Words
    • 5 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Quiz 1 & 2
    • 6098 Words
    • 25 Pages

    Quiz 1 & 2

    Question : (TCO C) Pate & Co. has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15 percent debt and 85 percent equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?…

    • 6098 Words
    • 25 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Fin 516 Quiz 1
    • 1163 Words
    • 5 Pages

    Fin 516 Quiz 1

    | (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio?…

    • 1163 Words
    • 5 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Fin 571
    • 439 Words
    • 2 Pages

    Fin 571

    B4. (Present value) What is the present value of $5,000 to be received in two equal installments of ($2,500), four years and five years from today, when the annual discount rate is 10%?…

    • 439 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    Finance final study guide
    • 2213 Words
    • 8 Pages

    Finance final study guide

    -Martin Industries just paid an annual dividend of $1.30 a share. The market price of the stock is $36.80 and the growth rate is 6.0 percent. What is the firm's cost of equity?…

    • 2213 Words
    • 8 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Week 1 Quiz
    • 1042 Words
    • 5 Pages

    Week 1 Quiz

    A firm has current assets of $100,000 and total assets of $300,000. The firm 's sales are $900,000. The firm 's fixed asset turnover is…

    • 1042 Words
    • 5 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Harrod's Sporting Goods
    • 1006 Words
    • 5 Pages

    Harrod's Sporting Goods

    For all three ratios (profit margin, return on assets, and return on equity) the trends from 2004 to 2006 remains the same. All three ratios increased from year 2004 to 2005, but dramatically decreased from 2005 to 2006 dropping below the percent ratios of 2004. The increase of Profit margin indicates that Harrods sporting goods had a higher return on the sales dollar which shows good cost control, the decrease (2005-2006) of the same ratio indicates the company having a lower return on the sales…

    • 1006 Words
    • 5 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    accounting review
    • 6905 Words
    • 80 Pages

    accounting review

    A company has net income of $870,000; its weighted-average common shares outstanding are 174,000. Its dividend per share is $1.25, its market price per share is $104, and its book value per share is $100.00. Its price-earnings ratio equals…

    • 6905 Words
    • 80 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Harmonic Hearing Case Study
    • 548 Words
    • 2 Pages

    Harmonic Hearing Case Study

    3.) Please refer to my calculations in the sheet named “Question #3”. 59% of year 7’s terminal value must be distributed to Comet Capital to produce its required 25% before-tax rate of return. The value created under the debt scenario is $37,089,386.37. The value created under the equity scenario is $53,099,690.74.…

    • 548 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Supply and Demand
    • 3087 Words
    • 13 Pages

    Supply and Demand

    1. A firm's current profits are $1,000,000. These profits are expected to grow indefinitely at a constant annual rate of 3.5 percent. If the firm's opportunity cost of funds is 5.5 percent, determine the value of the firm:…

    • 3087 Words
    • 13 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    BP Amoco Case Write Up
    • 636 Words
    • 3 Pages

    BP Amoco Case Write Up

    As long-term valuation is assumed, risk free rate is set as 30-year treasury rate, 5.73%. Cost of debt is 6.72% reflecting Amoco’s credit level. Cost of equity is calculated as 10.63%, leading to final WACC at 8.85% (Chart 1).…

    • 636 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Solutions to Valuation Questions
    • 1713 Words
    • 7 Pages

    Solutions to Valuation Questions

    Solutions to Valuation Questions 1. Assume you expect a company’s net income to remain stable at $1,100 for all future years, and you expect all earnings to be distributed to stockholders at the end of each year, so that common equity also remains stable for all future years (assumes clean surplus). Also, assume the company’s β = 1.5, the market risk premium is 4% and the 20-30 year yield on risk free treasury bonds is 5%. Finally, assume the company has 1,000 shares of common stock outstanding. a. Use the CAPM to estimate the company’s equity cost of capital. • re = RF + β * (RM – RF) = 0.05 + 1.5 * 0.04 = 11% b. Compute the expected net distributions to stockholders for each future year. • D = NI – ΔCE = $1,100 – 0 = $1,100 c. Use the dividend discount (i.e., free cash flow to equity investors) valuation model to estimate the company’s current stock price. • Pe = D / re = $1,100 / 0.11 = $10,000 • price per share = $10,000 / 1,000 = $10 2. Same facts as in (1) above, but assume you expect the company’s income to be $1,100 in the coming year and to grow at the rate of 5% in every subsequent year into infinity. Also, assume that the company’s common equity as of the end of the most recent fiscal year is $8,000, and the investment needed to support the growth in net income causes common equity to increase by 5% each year. Assume the company is an all-equity firm; i.e., all financing comes from stockholders and none comes for debtholders. In this case, the company’s balance sheet has net operating assets (NOA) of $8,000, common equity (CE) of $8,000, and zero net financial obligations (NFO). a. Compute D1 for the coming year and the rate of growth in Dt for every year thereafter. • D1 = NI1 – ΔCE1 = 1,100 – 0.05 * 8,000 = 700 • D2 = NI2 – ΔCE2 = (1,100 * 1.05) – 0.05 * (1.05 * 8,000) = 1.05 * (1,100 – 0.05 * 8,000) = 735 = 700 * (1 + 0.05) • D3 = NI3 – ΔCE3 = (1,100 * 1.052) – 0.05 * (1.052 * 8,000) = 771.75 = 735 * (1 + 1.05) • so D is 700 in year 1 and grows at 5%…

    • 1713 Words
    • 7 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Net Present Value and Learning Objective Number
    • 5215 Words
    • 21 Pages

    Net Present Value and Learning Objective Number

    3. The future value of a series of cash flows over time can be computed by:…

    • 5215 Words
    • 21 Pages
    Satisfactory Essays
    Read More

Related Topics