Question

GrandPreex Inc. is an all‐stock corporation that manufactures consumer goods. Sales are expected to be $500...

GrandPreex Inc. is an all‐stock corporation that manufactures consumer goods. Sales are expected to be $500 million over the course of this year (realized at the end of this year), and are projected to grow at 10% annual rate over the following two years. After that point, sales will stabilize. Management estimates that cash costs will be 60% of revenue in each year. To achieve these sales projections, total investment in plant and equipment will have to be $40 million this year (again, paid out at year end), $45 million next year, and will level off at $50 million thereafter. Depreciation charges are expected to match investment outlays in each of these years. GrandPreex is in the 34% tax bracket. The required return on GrandPreex’s assets is 16% [This is r0]. The firm has 10 million shares outstanding, currently trading at $65 per share. There are no costs of financial distress.

Would you say that GrandPreex’s shares are fairly priced?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Chewy Corporation is an all equity firm. Sales next year are expected to be $500 million...
Chewy Corporation is an all equity firm. Sales next year are expected to be $500 million and will grow at the rate of 10 percent over the following two years. Depreciation is expected to be 20 percent of sales and with other costs occupying 40 percent of sales. The tax rate is 40 percent. A.) If next investment in net working capital and capital spending occupy 10 percent of sales, compute Chewy's free cash flow (FCF) for years 1 through...
The expected return on the stock market is 10% with a standard deviation of 20%. The...
The expected return on the stock market is 10% with a standard deviation of 20%. The risk-free rate is 5%. UCW Co.'s common stock returns are 50% correlated with the overal market and its dividend next year will be $1.00/ share. The dividend's growth rate is 10% and standard deviation of UCW Co's shares is 70%. The stock is trading at $18.25/ share. Should the stock of UCW Co. be bought or sold? Select one: a. Bought (the stock is...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $50 million a year. Variable costs are 60% of sales.  The project is expected to last 10 years. Also, non-variable costs are $10,000,000 per year. The company has spent $4,000,000 in research and a marketing study that determined the company will lose (cannibalization) $10 million in sales a year of its...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $50 million a year. Variable costs are 60% of sales.  The project is expected to last 10 years. Also, non-variable costs are $10,000,000 per year. The company has spent $4,000,000 in research and a marketing study that determined the company will lose (cannibalization) $10 million in sales a year of its...
Oscar Inc. has a new product priced at $500 per unit. Variable cost is $250 per...
Oscar Inc. has a new product priced at $500 per unit. Variable cost is $250 per unit, and fixed costs are $200,000 per year. Quantity sold is expected to be 20,000 units per year. The new product will require an initial investment of $14 million, depreciation will be straight-line to zero for seven years, and salvage at the end of seven years is expected to be $1 million. Demand for the product is expected to be stable and to continue...
Oscar Inc. has a new product priced at $500 per unit. Variable cost is $250 per...
Oscar Inc. has a new product priced at $500 per unit. Variable cost is $250 per unit, and fixed costs are $200,000 per year. Quantity sold is expected to be 20,000 units per year. The new product will require an initial investment of $14 million, depreciation will be straight-line to zero for seven years, and salvage at the end of seven years is expected to be $1 million. Demand for the product is expected to be stable and to continue...
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to...
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $70 million next year. ARI currently has accounts receivable of $10 million, inventories of $17 million, and net fixed assets of $18 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $16 million to a new level of $19 million next year. ARI wants to...
Kohwe Corporation plans to issue equity to raise $60 million to finance a new investment. After...
Kohwe Corporation plans to issue equity to raise $60 million to finance a new investment. After making the​ investment, Kohwe expects to earn free cash flows of $11 million each year. Kohwe currently has 5 million shares​ outstanding, and it has no other assets or opportunities. Suppose the appropriate discount rate for​ Kohwe's future free cash flows is 8%​, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of​ Kohwe's investment?...
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to...
Appalachian Registers, Inc. (ARI) has current sales of $50 million. Sales are expected to grow to $70 million next year. ARI currently has accounts receivable of $12 million, inventories of $12 million, and net fixed assets of $15 million. These assets are expected to grow at the same rate as sales over the next year. Accounts payable are expected to increase from their current level of $13 million to a new level of $17 million next year. ARI wants to...
Fincher Manufacturing has projected sales of $147 million next year. Costs are expected to be $82...
Fincher Manufacturing has projected sales of $147 million next year. Costs are expected to be $82 million and net investment is expected to be $16 million. Each of these values is expected to grow at 15 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 7 percent, where it is expected to remain indefinitely. There are 6.5 million shares of stock outstanding and investors require a return of 14 percent...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT