Question

The MoMi Corporation’s cash flow from operations before
interest, depreciation and taxes was $1.5 million in the year just
ended, and it expects that this will grow by 5% per year forever.
To make this happen, the firm will have to invest an amount equal
to 15% of pretax cash flow each year. The tax rate is 21%.
Depreciation was $210,000 in the year just ended and is expected to
grow at the same rate as the operating cash flow. The appropriate
market capitalization rate for the unleveraged cash flow is 12% per
year, and the firm currently has debt of $3 million outstanding.
Use the free cash flow approach to calculate the value of the firm
and the firm’s equity. **(Enter your answer in dollars not
in** **millions.)**

Answer #1

Answer :

Calculation :

C/F from Operations before interest and tax = Last year C/F from
Operations before interest and tax + 5% growth

= $1,500,000 + ($1,500,000 * 5%)

= $1,575,000

Depn = $210,000 + ($210,000 * 5%) = $220,500

Taxable income = $1,575,000 - $220,500 = $1,354,500

After Tax unleveraged income = $1,354,500 * (1 - 21%) = $1,070,055.

After Tax C/F from Operation = $1,070,055 + $220,500 = $1,290,555

Fresh Investment at 15% of C/F from operation = $1,575,000 * 15% = $236,250

FCF = $1,290,555 - $236,250 = $1,054,305

Present value of all future FCF = $1,054,305 / (12% - 5%)

= $15,061,500

**Equity value = firm value – market value of
debt**

Value of equity = $15,061,500 - $3,000,000 = $12,061,500.

The MoMi Corporation’s cash flow from operations before interest
and taxes was $2.7 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 15% of pretax cash
flow each year. The tax rate is 21%. Depreciation was $330,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

The MoMi Corporation’s cash flow from operations before interest
and taxes was $2.8 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 16% of pretax cash
flow each year. The tax rate is 21%. Depreciation was $340,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

The MoMi Corporation’s cash flow from operations before interest
and taxes was $2 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 20% of pretax cash
flow each year. The tax rate is 21%. Depreciation was $200,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

The MoMi Corporation’s cash flow from operations before interest
and taxes was $3.1 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 19% of pretax cash
flow each year. The tax rate is 21%. Depreciation was $370,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

The MoMi Corporation’s cash flow from operations before interest
and taxes was $4.2 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 15% of pretax cash
flow each year. The tax rate is 35%. Depreciation was $310,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

he MoMi Corporation’s cash flow from operations before interest
and taxes was $1.8 million in the year just ended, and it expects
that this will grow by 5% per year forever. To make this happen,
the firm will have to invest an amount equal to 18% of pretax cash
flow each year. The tax rate is 21%. Depreciation was $240,000 in
the year just ended and is expected to grow at the same rate as the
operating cash flow. The...

The MoMi Corporation’s income before interest, depreciation and
taxes, was $2.7 million in the year just ended, and it expects that
this will grow by 5% per year forever. To make this happen, the
firm will have to invest an amount equal to 15% of pretax cash flow
each year. The tax rate is 30%. Depreciation was $330,000 in the
year just ended and is expected to grow at the same rate as the
operating cash flow. The appropriate market...

Atchley Corporation’s last free cash flow was $1.55 million. The
free cash flow growth rate is expected to be constant at 1.5% for 2
years, after which free cash flows are expected to grow at a rate
of 8.0% forever. The firm's weighted average cost of capital (WACC)
is 12.0%. Atchley has $2 million in short-term debt and $14 million
in debt and 1 million shares outstanding. What is the best estimate
of the intrinsic stock price?
a. $29.70 b....

1. PA Film Corporation’s last free cash flow was $1.55 million.
The free cash flow growth rate is expected to be constant at 1.5%
for 2 years, after which free cash flows are expected to grow at a
rate of 8.0% forever. The firm's weighted average cost of capital
(WACC) is 12.0%. It has $2 million in short-term debt and $14
million in debt and 1 million shares outstanding. What is the best
estimate of the intrinsic stock price? a....

A firm's cash flow from operations is $40 million, depreciation
is $2 million, its investments in fixed capital totals $14 million,
its after-tax interest totals $4 million and its investment in
working capital totals $4 million. During the year the firm
borrowed $5 million. The tax rate is 30%. What is its Free Cash
Flow to Equity? Select one:
a. $41.00 million
b. $31.00 million
c. $29.00 million
d. $42.20 million

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 30 minutes ago

asked 53 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago