Question

Sheldon Corporation projects the following free cash flows (FCFs) and interest expenses for the next 3 years, after which FCF and interest expenses are expected to grow at a constant 8% rate. Sheldon’s unlevered cost of equity is 11% its tax rate is 40%.

Year | |||

1 | 2 | 3 | |

Free cash flow ($ millions) | $20 | $30 | $40 |

Interest expense ($ millions) | $8 | $9 | $10 |

What is Sheldon’s unlevered horizon value of operations at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.

$ million

What is the current unlevered value of operations? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.

$ million

What is horizon value of the tax shield at Year 3? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.

$ million

What is the current value of the tax shield? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places.

$ million

What is the current total value of the company? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to two decimal places

Answer #1

What is Sheldon’s unlevered horizon value of operations at Year
3

Unlevered horizon value at Year 3 = free cash flow at year
3*(1+g)/unlevered cost of equity - g

= $40*(1+8%)/(11%-8%) = 43.2/3% = $1,140 million.

What is the current unlevered value of operations?

Value of unlevered firm's operations = present value of free cash
flows discounted at unlevered.

That implies, Unlevered value= 20/(1.11) + 30/(1.11)^{2}
+ 40+1,140/(1.11)^{3}

=18.02+ 24.35 + 862.81 = $905.18 million

What is horizon value of the tax shield at Year 3?

Tax shield horizon value = TS3(1+g)/( unlevered cost of equity
-g)

5 (1.08)/(0.11-0.08) = 5.4 / 3% = 180million

What is the current value of the tax shield?

Value of the tax shield = 3.2/(1.11) + 3.6/(1.11)^{2} +
(4+180)/(1.11)^{3}

= 2.88 + 2.92 + 134.54 = $140.34million

What is the current total value of the company?

value of Sheldon can be calculated as PV of all (FCF + Tax Shield +
Horizon Value) discounted at unlevered cost of equity.

Value of sheldon = Value of unlevered firm's operations+ Value of
the tax shield

= 905.18 + 140.34 = $1,045.52million

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 8% rate. Dantzler's WACC is 10%.
Year
0
1
2
3
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
......
FCF ($ millions)
- $11
$18
$47
What is Dantzler's horizon, or continuing, value? (Hint: Find
the value of all free...

Dantzler Corporation
is a fast-growing supplier of office products. Analysts project the
following free cash flows (FCFs) during the next 3 years, after
which FCF is expected to grow at a constant 4% rate. Dantzler's
WACC is 13%.
Year
0
1
2
3
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
......
FCF ($
millions)
- $14
$16
$60
What is Dantzler's horizon, or continuing, value? (Hint: Find
the value of all free...

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 7% rate. Dantzler's WACC is 13%.
Year
0
1
2
3
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
......
FCF ($ millions)
- $12
$30
$50
What is Dantzler's horizon, or continuing, value? (Hint: Find
the value of all free...

Dozier Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 10% rate. Dozier's weighted average cost of capital is
WACC = 18%.
Year
1
2
3
Free cash flow ($ millions)
-$20
$30
$40
What is Dozier's horizon value? (Hint: Find the value
of all free cash flows beyond Year 3 discounted back to Year 3.)
Enter your...

Dozier Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 10% rate. Dozier's weighted average cost of capital is
WACC = 13%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40
What is Dozier's horizon value? (Hint: Find the value of all free
cash flows beyond Year 3 discounted back to Year 3.) Enter your...

Dozier Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 9% rate. Dozier's weighted average cost of capital is WACC
= 15%. Year 1 2 3 Free cash flow ($ millions) -$20 $30 $40
a) What is Dozier's horizon value? (Hint: Find the value of all
free cash flows beyond Year 3 discounted back to Year 3.) Enter...

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 8% rate. Dantzler's WACC is 12%.
Year
0
1
2
3
.......
.......
.......
.......
.......
.......
.......
.......
FCF ($ millions)
.......
.......
.......
.......
.......
.......
.......
......
- $8
$18
$58
What is Dantzler's horizon, or continuing, value?
(Hint: Find the value of all free...

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 4% rate. Dantzler's WACC is 16%.
Year
0
1
2
3
..
FCF ($ millions)
- $19
$15
$50
What is Dantzler's horizon, or continuing, value?
(Hint: Find the value of all free cash flows beyond Year 3
discounted back to Year 3.) Round your answer to two...

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 8% rate. Dantzler's WACC is 14%.
Year 0 1 2 3 ....... ....... ....... ....... ....... .......
....... ....... FCF ($ millions) ....... ....... ....... .......
....... ....... ....... ...... - $7 $14 $52
Open spreadsheet What is Dantzler's horizon, or continuing,
value? (Hint: Find the value of...

Dantzler Corporation is a fast-growing supplier of office
products. Analysts project the following free cash flows (FCFs)
during the next 3 years, after which FCF is expected to grow at a
constant 7% rate. Dantzler's WACC is 14%.
Year
0
1
2
3
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
.......
......
FCF ($ millions)
- $6
$25
$59
What is Dantzler's horizon, or continuing, value?
(Hint: Find the value of all free...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 15 minutes ago

asked 33 minutes ago

asked 33 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