Reference no: EM13902256
FREE CASH FLOWS. Dick's Sporting Goods is a chain of full-line sporting goods retail stores offering a broad assortment of brand name sporting goods equipment, apparel, and footwear. Dick's Sporting Goods had its initial public offer- ing of shares in fiscal 2003. Since then, Dick's Sporting Goods has grown its chain of retail stores rapidly and has acquired several other chains of retail sporting goods stores, including Golf Galaxy and Chick's Sporting Goods in the fiscal year ending in 2008. As of the end of the fiscal year ending in 2009, Dick's Sporting Goods operated 409 stores in 40 states of the United States. Exhibit 12.12 presents information from the statement of cash flows and income statement for Dick's Sporting Goods for the fiscal years ending in 2007 through 2009. Dick's Sporting Goods requires all of its cash and cash equivalents for operating li- quidity and reports no interest income on the income statement. The average income tax rate for Dick's Sporting Goods during 2007 through 2009 is 40 percent.
Required:
a. Beginning with cash flows from operating activities, calculate free cash flows to all debt and equity capital stakeholders for Dick's Sporting Goods for fiscal years end- ing in 2009, 2008, and 2007.
b. Beginning with cash flows from operating activities, calculate free cash flows for common equity shareholders for Dick's Sporting Goods for fiscal years ending in 2009, 2008, and 2007.
c. Reconcile the amounts of free cash flows for common equity shareholders for Dick's Sporting Goods for fiscal years ending in 2009, 2008, and 2007 with Dick's Sporting Goods' sources of cash flow from equity shareholders.
d. Why do the free cash flows to all debt and equity capital stakeholders for Dick's Sporting Goods change so much from 2007 through 2009? In each of these three years, why do the free cash flows to all debt and equity capital stakeholders differ so much from the free cash flows to common equity shareholders?
e. In each of these three years, Dick's Sporting Goods produces negative free cash flows for common shareholders. Does that imply that Dick's Sporting Goods is destroying the value of common equity? Explain.
Text Book: Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective By James Wahlen, Stephen Baginski, Mark Bradshaw.
|
Calculate value of the equity of msc as of end of year seven
: Calculate the value of the equity of MSC as of the end of Year 7 under each of the four scenarios. Ignore the midyear adjustment related to the assumption that cash flows occur, on average, over the year.
|
|
Compute the weighted average cost of capital for wedgewood
: Compute the weighted average cost of capital for Wedgewood based on the proposed capital structure. Compute the total purchase price of Wedgewood (debt plus common equity).
|
|
Compute the unlevered market equity asset beta of equifax
: Compute the unlevered market equity (asset) beta of Equifax. Compute the equity beta of Experian after the buyout with its new capital structure.
|
|
Compute the weighted average cost of capital
: Compute the weighted average cost of capital of the new capital structure. Compute the present value of the projected free cash flows to all debt and equity capital stakeholders at the weighted average cost of capital.
|
|
Calculate free cash flows for common equity shareholders
: Beginning with cash flows from operating activities, calculate free cash flows for common equity shareholders for Dick's Sporting Goods for fiscal years ending in 2009, 2008, and 2007.
|
|
Calculate the amount of free cash flows to all debt
: Beginning with cash flows from operating activities, calculate the amount of free cash flows to all debt and equity capital stakeholders for 3M for 2006, 2007, and 2008.
|
|
Describe circumstances and give an example
: Describe circumstances and give an example of when free cash flows to equity shareholders and free cash flows to all debt and equity stakeholders will be identical.
|
|
Consider livability-safety and convenience
: How would you create a city that does not produce more air pollution than the atmosphere can cleanse naturally? In creating this more sustainable environment, consider livability, safety, and convenience.
|
|
How free cash flows approach can produce positive valuations
: Explain how the free cash flows approach can produce positive valuations of firms when they are expected to generate negative free cash flows over the next five years.
|