Question

Happy Fliers Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...

Happy Fliers Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 19% per year into the future. Next year, the company expects to generate a free cash flow of $2,000,000. The market value of Happy Fliers’s outstanding debt and preferred stock is $10,000,000 and $5,555,556, respectively. Happy Fliers has 1,500,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 28%.

Given the preceding information, complete the adjacent table (rounding each value to the nearest whole dollar), and assuming that the firm has not had any nonoperating assets in its balance sheet.

Term

Value

Value of Operations
Value of Firm’s Common Equity
Value of Common Stock (per share)

Oops, a more careful review of Happy Fliers’s balance sheet actually reports a $2,620,000 portfolio of marketable securities. How does this new information affect the intrinsic value of Happy Fliers’s common equity (expressed on a per-share basis) assuming no other changes to the Happy Fliers financial situation? Review the statements below and select those that accurately describe Happy Fliers’s financial situation. Check all that apply.

A. The intrinsic value of the company’s common stock isn’t affected by the new information.

B. The intrinsic value of Happy Fliers’s common stock increases with the inclusion of the company’s marketable securities portfolio into the analysis.

C. The greater the market value of the marketable securities portfolio, the smaller the company’s total intrinsic (entity) value.

D. The intrinsic value of Happy Fliers’s common stock decreases with the inclusion of the company’s marketable securities portfolio into the analysis.

Homework Answers

Answer #1

2. Option B. The intrinsic value of Happy Fliers’s common stock increases with the inclusion of the company’s marketable securities portfolio into the analysis.

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
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 14% per year into the future. Next year, the company expects to generate a free cash flow of $8,000,000. The market value of Flying Cow’s outstanding debt and preferred stock is $51,428,571 and $28,571,429, respectively. Flying Cow has 6,750,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 21%. Given the preceding information, complete the...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 14% per year into the future. Next year, the company expects to generate a free cash flow of $8,000,000. The market value of Flying Cow’s outstanding debt and preferred stock is $51,428,571 and $28,571,429, respectively. Flying Cow has 6,750,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 21%. Given the preceding information, complete the...
Noe Technologies’ stock current free cash flows is expected to be $25.00 million, and it is...
Noe Technologies’ stock current free cash flows is expected to be $25.00 million, and it is expected to grow at a constant rate of 5.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt and $25.0 million of marketable securities, and there are 10.0 million shares of common stock outstanding. What is the firm's intrinsic value per share of common stock?
Alberto Inc. currently holds $410,000 of non-operating marketable securities. Its long-term debt is $1,500,000, but it...
Alberto Inc. currently holds $410,000 of non-operating marketable securities. Its long-term debt is $1,500,000, but it has never issued preferred stock. Alberto has 65,000 shares of stock outstanding. Its current free cash flow is $180,000, and this FCF is expected to grow at a constant 9% rate. Alberto has never paid a dividend, and it’s not known when the firm might begin paying dividends. The weighted average cost of capital WACC is 15%. Based on this information: (a) Calculate Alberto’s...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable securities, $10; long-term debt, $80; common shares outstanding, 25. [17 points] a. Calculate the horizon value at the end of year 3.                                                                                                                                                                                                                                                                                                                                                              b. Calculate the current value of operations.                                                                                                                                                                                                                                                                                                                                                            c. Calculate the intrinsic value of common equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     d. Calculate the intrinsic stock...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free    ...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free     cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable     securities, $10; long-term debt, $80; common shares outstanding, 25. a. Calculate the horizon value at the end of year 3. b. Calculate the current value of operations. c. Calculate the intrinsic value of common equity. d. Calculate the intrinsic stock price e. Suppose the current price of...
Carmax Inc. has generates annual free cash flow of $2,096 million. The firm current has $1,823...
Carmax Inc. has generates annual free cash flow of $2,096 million. The firm current has $1,823 million in long and short-term debt, $259 million in marketable securities, and the current market value of preferred stock is $767 million. Carmax expects their cash flow to grow 25% and 10% during the next two years. The fi rm then anticipates a constant FCF growth rate of 9%. If the fi rm has a WACC of 18% and 364 million shares outstanding, what...
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1)...
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1) is expected to be $55.00 million, and it is expected to grow at a constant rate of 5.0% a year thereafter. The company’s WACC is 9.0%, it has $105.0 million of long-term debt plus preferred stock outstanding, and there are 20.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash...
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash flow is expected to grow at a constant growth rate of 5% a year in the future. The firm's WACC is 10%, and it has $600 million of long-term debt and preferred stock. If the firm has 34 million shares of common stock outstanding, what is the estimated intrinsic value per share of their common stock? Your answer should be between 14.20 and 68.54
The free cash flows (in millions) shown below are forecast by Simmons Inc. Year: 1 2...
The free cash flows (in millions) shown below are forecast by Simmons Inc. Year: 1 2 3 Free cash flow: -$25 $50 $55 respectively. If the weighted average cost of capital is 12% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions? The balance sheet shows $25 million of short-term investments that are unrelated to...