Question

76 Samsco has current after-tax operating income of $65 million and a cost of capital of...

76
Samsco has current after-tax operating income of $65 million and a cost of capital of 9.5%. Assume that the firm is in stable growth, growing 3% a year forever and that the reinvestment rate is 35%.
Using the calculation from the previous question, please compute the value of Samsco.

Homework Answers

Answer #1
Answer
Given that -
Current year after tax operating income $65.00 Million
Growth rate G = 3.00%
required rate R = 9.50%
Reinvestment rate = 35.00%
Value of firm can be computed using below formula
Value of firm = (Current year after tax operating income *(1+Growth%)*(1-reinvestment rate))/(Required rate of return-growth rate)
=(65*(1+0.03)*(1-0.35))/(0.095-0.03) $ 669.50 million
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The current capital structure is 35 percent debt and 65 percent equity. The after-tax cost of...
The current capital structure is 35 percent debt and 65 percent equity. The after-tax cost of our debt is 6 percent, and the cost of our equity (in retained earnings) is 13 percent. Please compute the firm’s current weighted average cost of capital. One of the things we discussed with our investor, due to the current low interest rate environment, is moving our capital structure to 45 percent debt and 55 percent equity. With this new structure, the after-tax cost...
Standish Inc. is a conglomerate that is expected to generate $100 million in after-tax operating income...
Standish Inc. is a conglomerate that is expected to generate $100 million in after-tax operating income next year, growing at 2.50% a year in perpetuity. It is planning to sell of its steel division for $200 million and you have been given the following information on the company and its steel division. Estimate the value of Standish's equity after the divestiture assuming that it has no cash and no debt, pre divestiture, but plans to hold the divestiture proceeds as...
Dabney Electronics currently has no debt. Its operating income (EBIT) is $20 million and its tax...
Dabney Electronics currently has no debt. Its operating income (EBIT) is $20 million and its tax rate is 40 percent. It pays out all of its net income as dividends and has a zero growth rate. It has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10 percent. What would...
Newcastle Inc. currently has no debt, annual earnings before interest and taxes of $76 million and...
Newcastle Inc. currently has no debt, annual earnings before interest and taxes of $76 million and an average tax rate of 34%. Net income is expected to stay constant forever. The firm pays out 100% of net income as dividends. Using the CAPM, the firm estimates that its cost of equity is 13%. The risk-free rate is 2% and the expected equity market risk premium is 7%. There are 8 million shares outstanding. The firm is considering issuing bonds worth...
Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1...
Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $430 million and its 2020 depreciation expense will be $65 million. Barrington's 2020 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs...
Anker Inc. is a listed company in New York. Its current before interest after-tax operating cash...
Anker Inc. is a listed company in New York. Its current before interest after-tax operating cash flow is $100 million. The cash flow is expected to grow at 6% per annum over the next three years, after which the growth will fall to 3% per annum and stay at this rate forever. The following information is also available: Tax rate 30% Risk-free rate 4% Market return 12% Equity beta 2 Cost of debt 7% D/E 60% Given the above data,...
XYZ Corp. had operating income this year of $120 million and is in the 40% tax...
XYZ Corp. had operating income this year of $120 million and is in the 40% tax bracket. The firm carried $200 million in debt at a cost of 10% interest. This year's depreciation expense was $30 million. XYZ Corp. has budgeted $40 million in capital spending and an additional $5 million in non-cash working capital. No change is anticipated in the company's net debt. What is XYZ Corp.'s expected free cash flow to equity (FCFE)? Select one: A. $15 million...
Assume today is December 31, 2016. Barrington Industries expects that its 2017 after-tax operating income [EBIT(1...
Assume today is December 31, 2016. Barrington Industries expects that its 2017 after-tax operating income [EBIT(1 – T)] will be $410 million and its 2017 depreciation expense will be $65 million. Barrington's 2017 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2017 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 5.5% annually. Assume that its free cash flow occurs...
Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1...
Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1 - T)] will be $420 million and its 2014 depreciation expense will be $60 million. Barrington's 2014 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2014 will be $25 million. The firm's free cash flow is expected to grow at a constant rate of 5.5% annually. Assume that its free cash flow occurs...
WACC AND COST OF COMMON EQUITY Kahn Inc. has a target capital structure of 65% common...
WACC AND COST OF COMMON EQUITY Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 13%, a before-tax cost of debt of 8%, and a tax rate of 40%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $25....