Question

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 value of operations. (b) Calculate the company’s total value. (c) Calculate the intrinsic value of its common equity. (d) Calculate the intrinsic per share stock price

Answer #1

McCaffrey's Inc. has never paid a dividend, and when the firm
might begin paying dividends is not known. Its current free cash
flow (FCF) is $100,000, and this FCF is expected to grow at a
constant 7% rate. The weighted average cost of capital (WACC) is
11%. McCaffrey's currently holds $325,000 of non-operating
marketable securities. Its long-term debt is $1,000,000, but it has
never issued preferred stock. McCaffrey's has 50,000 shares of
stock outstanding.
Calculate the following:
McCaffrey's value of...

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...

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 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...

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...

Which of the following assets is NOT the operating assets
A. Accounts Receivable B. Marketable Securities C. Net Fixed
Assets D. Inventories
To help finance a major expansion, a company sold a noncallable
bond several years ago that now has 15 years to maturity. This bond
has a 5% annual coupon, paid semiannually, it sells at a price of
$985, and it has a par value of $1,000. If the company’s tax rate
is 21%, what component cost of debt...

Stay Swift Corp. has an expected net operating profit after
taxes, EBIT(1 – T), of $14,700 million in the coming year. In
addition, the firm is expected to have net capital expenditures of
$2,205 million, and net working capital (NWC) is expected to
increase by $45 million. How much free cash flow (FCF) is Stay
Swift Corp. expected to generate over the next year? $248,416
million $16,860 million $12,450 million $12,540 million Stay Swift
Corp.’s FCFs are expected to grow...

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...

The recognition that dividends are dependent on earnings, so a
reliable dividend forecast is based on an underlying forecast of
the firm's future sales, costs and capital requirements, has led to
an alternative stock valuation approach, known as the corporate
valuation model. The market value of a firm is equal to the present
value of its expected future free cash flows plus the market value
of its non-operating assets:
Free cash flows are generally forecasted for 5 to 10 years,...

3. 3: Stocks and Their Valuation: Corporate Valuation
Model
The recognition that dividends are dependent on earnings, so a
reliable dividend forecast is based on an underlying forecast of
the firm's future sales, costs and capital requirements, has led to
an alternative stock valuation approach, known as the corporate
valuation model. The market value of a firm is equal to the present
value of its expected future free cash flows plus the market value
of its non-operating assets:
Free cash flows...

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