Question

show calculation how to solve the next 3 problems (show work)

1. The Walt Disney Company (DIS) common stock shares, listed on NYSE, are trading at $110.32 per share. If the company has about 1.5 billion shares outstanding, what is Disney’s market capitalization? Disney would be referred to as a _____ cap firm

2. MPI has 30 million shares outstanding, paid an annual dividend of $0.40 per share to its common stockholders, and has a 40% marginal tax rate. The firm earned revenues of $60 million, had cash operating expenses of $20 million and paid interest expense of $10 million. What is MPI’s earnings per share?

3. Mars Enterprises is evaluating a project which if implemented, will be sold for $850,000 is three years. If the company requires a 16 percent return on this investment, what is the most Mars will be willing to pay for the project?

Answer 1

1)

Market capitalization = Share price * number of shares outstanding

Market capitalization = $110.32 * 1.5 billion

Market capitalization = 165.48 billion

Large cap

2)

Net income = (Sales - cash operating expense - interest)(1 - tax)

Net income = (60 - 20 - 10)(1 - 0.4)

Net income = 18

Earnings per share = Net income / Shares

Earnings per share = 18 / 30

Earnings per share = 0.6 per share

3)

Present value = Cash flow / ( 1 + r)ⁿ

Present value = 850,000 / (1 + 0.16)³

Present value = 850,000 / 1.560896

Present value = $544,559.02

$544,559.02 is the most mars will be willing to pay