FIN 504- P7–15 Common stock value: All growth models

ByPlatinum Essays

P7–15 Common stock value: All growth modelsYou are evaluating the potential purchase of a small business currently generating $42,500 of after-tax cash flow (D0 = $42,500). On the basis of a review of similar-risk investment opportunities, you must earn an 18% rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm’s value using several possible assumptions about the growth rate of cash flows.a. What is the firm’s value if cash flows are expected to grow at an annual rate of 0% from now to infinity?b. What is the firm’s value if cash flows are expected to grow at a constant annual rate of 7% from now to infinity?c. What is the firm’s value if cash flows are expected to grow at an annual rate of 12% for the first 2 years, followed by a constant annual rate of 7% from year 3 to infinity?P7-16 Free cash flow valuationNabor 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 11%, and it has $1,500,000 of debt at market value and $400,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 years, 2016 through 2020, are given below. Beyond 2020 to infinity, the firm expects its free cash flow to grow by 3% annually.Year (t) Free cash flow (FCFt)2016 $200,0002017 250,0002018 310,0002019 350,0002020 390,000a. Estimate the value of Nabor Industries’ entire company by using the free cash flow valuation model.b. Use your finding in part a, along with the data provided above, to find Nabor Industries’ common stock value.c. If the firm plans to issue 200,000 shares of common stock, what is its estimated value per share?

Order a similar assignment, and have writers from our team of experts write it for you, guaranteeing you an A

Order Solution Now

Similar Posts

FIN 510- Problem 5-34 Amortization schedule

ByPlatinum Essays

Problem 5-34Amortization scheduleSet up an amortization schedule for a $45,000 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 12% compounded annually. Round all answers to the nearest cent.BeginningRemainingYearBalancePaymentBalance1$ $ $ 2$ $ $ 3$ $ $ What percentage of the payment represents…

BBA 3602- When encouraging and helping a subordinate organizational member

ByPlatinum Essays

1. When encouraging and helping a subordinate organizational member progress professionally, how much effort should you invest in any one person? How much effort and mentoring is appropriate, and when are a manger’s efforts too much?Your response should be at least 200 words in length.2.Describe how you would take human behavior into account when communicating…

In research, phalloidin can be used to fluorescently

ByPlatinum Essays

In research, phalloidin can be used to fluorescently label actin filaments within a cell. Briefly describe how this is possible, considering that phalloidin itself is not fluorescent. What is the purpose of the fixation step? What is the purpose of the permeabilization step? How staining with AO and DAPI is different form staining with phalloidin?…

In 1878, the U.S. Census Bureau reclassified

ByPlatinum Essays

In 1878, the U.S. Census Bureau reclassified “homekeepers” (primarily women who stayed at home to look after the household) from employed, productive workers to “dependents” and put them in the same classification as retired adults. 1 What would this kind of reclassification do to the measurement of both the employment rate and the unemployment rate…

FIN 300- Expected cash flows: FireRock Wheel Company is evaluating

ByPlatinum Essays

Expected cash flows: FireRock Wheel Company is evaluating a project in which there is a 40 percent probability of revenues totaling $3,000,000 and a 60 percent probability of revenues totaling $1,000,000 per year. Its cash expenses will be $1,000,000 while depreciation expense will be $200,000; then what is the expected free cash flow from taking…