Question

On December 31, 2006, a stock analyst has forecasted that Hart Enterprises should generate free cash...

On December 31, 2006, a stock analyst has forecasted that Hart Enterprises should generate free cash flows of $2,000 in 2007 and 2,200 in 2008 and 2,700 in 2009. Thereafter, free cash flow for Hart Enterprises is expected to grow at an annual rate of 5%. Hart Enterprises has a weighted average cost of capital (WACC) of 11%. Hart Enterprises has Notes Payable and Long-term Debt of $12,000 and no Preferred Stock. Hart Enterprises has 10,000 shares of common stock outstanding.

What is the Value of Hart Enterprises (Vcompany) (Round intermediate computations to 2 decimal points)?

a.

$5,561.59
b.

$34,548.79
c.

$40,110.38
d.

$47,250.00

Given the information in the previous problem, what is the value, P0, of a share of Hart Enterprise’s stock?

If the Hart Enterprises decreases its WACC to 10%, what will happen to the value of Hart Enterprises?

a.

The value of Hart Enterprises will increase because by decreasing its WACC, Hart Enterprises has reduced its costs of financing, and reducing costs makes a company more valuable.
b.

The value of Hart Enterprises will decrease because by decreasing its WACC, Hart Enterprises will make less money, making the company less valuable.
c.

The value of Hart Enterprises will not change, because the changing the WACC has no effect on value.
d.

It is impossible to tell what will happen to the value of Hart Enterprises, because you are not told why the WACC changed.
e.

None of the answers above is correct.
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