Question

Q1:Determine the correct discount rate to value the following scenario, assuming there is no end to...

Q1:Determine the correct discount rate to value the following scenario, assuming there is no end to the timeline and the following data:

Cost of equity = 17.64%

Cost of debt = 7.38%

Debt = $577MM

Equity = $1249MM

Tax rate = 40%

Long-term growth expectations = 3.1%

Future dividends are forecast as follows:

Year 0: n/a

Year 1: 128

Year 2: 148

Year 3: 162

Year 4: 176

Year 5: 183

Enter the correct discount rate below

Answer:

(17.64)

Q2. Value the following scenario, assuming there is no end to the timeline and the following data:

Cost of equity = 15.23%

Cost of debt = 6.71%

Debt = $578MM

Equity = $1246MM

Tax rate = 40%

Long-term growth expectations = 3.8%

Future dividends are forecast as follows:

Year 0: n/a

Year 1: 129

Year 2: 146

Year 3: 165

Year 4: 176

Year 5: 182

(Round your answer to the nearest cent)

Answer:

(1332.73)

Q3. Predict the cash flow for year 10 based on the growth of the following annual cash flows:

Year 1: 11,000

Year 2: 11,578

Year 3: 12,185

Year 4: 12,825

Year 5: 13,498

(Round your answer to the nearest whole dollar)

Answer:

(17433)

Q4.

Use the data below to compute 2014 Tax Rate:

2014

2013

Cash

15

16

Short-term investments

9

70

Accounts receivable

370

320

Inventories

552

417

Property, plant & equipment (net)

929

872

Accounts payable

48

31

Short-term debt

95

61

Accrued liabilities

148

135

Long-term debt

658

581

Common stock

130

130

Retained earnings

768

710

Net revenue

3148

2851

Depreciation expense

111

93

Interest

93

60

Taxes

82

82

Net income

254

124

Answer:

(24.40)

Q5. Use the data below to compute 2014 OCF (Operating Cash Flow):

2014

2013

Cash

15

17

Short-term investments

9

68

Accounts receivable

370

316

Inventories

553

417

Property, plant & equipment (net)

927

871

Accounts payable

47

32

Short-term debt

98

64

Accrued liabilities

148

135

Long-term debt

661

583

Common stock

130

130

Retained earnings

771

713

Net revenue

3143

2853

Depreciation expense

114

92

Interest

92

60

Taxes

81

81

Net income

255

123

(Round to the nearest whole dollar)

Answer:

(439)

Q6.

Use the data below to compute the change in NOWC (Net Operating Working Capital)

2014

2013

Cash

16

17

Short-term investments

6

65

Accounts receivable

368

318

Inventories

550

415

Property, plant & equipment (net)

926

874

Accounts payable

47

30

Short-term debt

99

60

Accrued liabilities

146

135

Long-term debt

663

584

Common stock

130

130

Retained earnings

767

711

Net revenue

3144

2855

Depreciation expense

114

95

Interest

89

61

Taxes

79

84

Net income

253

122

(Round to the nearest whole dollar)

Answer:

(156)

Q7.

Use the data below to compute the change in Gross Fixed Assets (i.e. Change in Gross property, plant & equipment)

2014

2013

Cash

14

20

Short-term investments

9

70

Accounts receivable

367

320

Inventories

551

420

Property, plant & equipment (net)

926

870

Accounts payable

47

32

Short-term debt

95

60

Accrued liabilities

150

133

Long-term debt

658

582

Common stock

130

130

Retained earnings

769

710

Net revenue

3143

2853

Depreciation expense

113

90

Interest

88

63

Taxes

79

82

Net income

251

123

(Round to the nearest whole dollar)

Answer:

(169)

Q8.

Use the data below to compute 2014 FCF (Free Cash Flow):

2014

2013

Cash

13

20

Short-term investments

5

69

Accounts receivable

366

319

Inventories

555

419

Property, plant & equipment (net)

928

871

Accounts payable

50

35

Short-term debt

96

64

Accrued liabilities

149

135

Long-term debt

663

584

Common stock

130

130

Retained earnings

769

712

Net revenue

3146

2852

Depreciation expense

113

95

Interest

89

60

Taxes

81

81

Net income

255

121

(Round to the nearest whole dollar)

Answer:

(119)

Homework Answers

Answer #1

1) After tax cost of debt

=7.38%(1-tax rate)

=7.38%(1-0.4)

=7.38%(0.6)

=4.428%

Statement showing WACC

Source of capital Amount Weight K WACC
Equity 1249 68.40% 17.64% 12.066%
Debt 577 31.60% 4.43% 1.399%
1826 13.465%

2) Present value pf future cash flows

Year Cash flow PVIF @ 13.465% Present value
1 129 0.881329044 113.691
2 146 0.776740884 113.404
3 165 0.684564301 112.953
4 176 0.603326401 106.185
5 182 0.53172908 96.775
P5 = 182(1.038)/13.465%-3.8%
=188.916/9.665%
195.464 0.53172908 103.934
Present value 646.943

3) Statement showing Dividend for 10 years

Year Cash flow
1 129.00
2 146.00
3 165.00
4 176.00
5 182.00
6 188.92
7 196.09
8 203.55
9 211.28
10 219.31

4) Statement showing Tax rate

Particulars Amount
Net income 254
Add: tax 82
PBT 336
Tax 82
% of tax(82/336) 24.4%
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