Project #17747 - Finance

1)Cell phone is a cellular firm that reported a net income of $50 million in the most recent financial year. The firm had $1 billion in debt, on which it reported interest expenses of $100 million in the most recent financial year. The firm had depreciation of $100 million for the year and capital expenditures were 200% of depreciation. The firm had a cost of capital of 11%. Assuming that there is no working capital requirement, and using a constant growth rate of 4% in perpetuity, estimate the value of the firm. Also assume that the risk premium is 5.5% and the tax rate is 40%.

 

 

2)Union Pacific Railroad reported net income of $770 million after interest expenses of $320 million in a recent financial year. (The corporate tax rate was 36 percent.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8 percent), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Union Pacific paid 40 percent of its earnings as dividends and working capital requirements are negligible. (The Treasury bond rate is 7 percent.)

 

3)
   During the past few years, Swanson Company has retained, on the average, 70 percent of its earnings in the business.  The future retention rate is expected to remain at 70 percent of earnings, and long-run earnings growth is expected to be 10 percent.  If the risk-free rate, KRF, is 8 percent, the expected return on the market, kM, is 12 percent, Swanson’s beta is 2.0, and the most recent dividend, D0, was $1.50, what is the most likely market price and P/E ratio (P0/E1) for Swanson’s stock today?

 

 

 

 

a. Estimate the FCFF for the most recent financial year.

 

b. Estimate the value of the firm now.

 

c. Estimate the value of equity and the value per share now.

 

Subject Business
Due By (Pacific Time) 11/24/2013 12:00 am
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