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Question - Following table shows the 5 year projections for AllInOne, Inc. Year + 6 values are calculated with 3% growth and are provided to be used for calculating continuing/terminal value of AllInOne. The cost of equity capital is 9.80%. Assume net income and comprehensive income will be identical and the change in cash account is required for liquidity.
AllInOne, Inc. Selected Financial information (amounts in millions and amounts are rounded)
Year + 1
Year + 2
Year + 3
Year + 4
Year + 5
Year +6
Common equity, beginning of year
$165.8
$1777
$192.1
$206.1
$216.7
$226.9
Net income
24.6
25.8
27.6
29.6
31
31.9
Dividends
-12.7
-11.4
-13.6
-19
-20.8
-25.1
Common equity, end of year
$177.7
$233.7
Cash flow from operations
$45.4
$51.2
$56.3
$61.5
$67.1
$70.2
Cash flow for investing
-35.2
-41.1
-41.9
-42.7
-43.5
-44.5
Cash flow for long-term debt
-0.5
2
0
1
-2
Cash flow for dividends
Net change in cash
($3.0)
$0.7
$0.8
$0.6
Questions:
a. Compute the value of AllInOne as of January 1, Year + 1, using the residual income model.
b. Repeat Requirement a using the present value of expected free cash flows to the common equity shareholders.
c. Repeat Requirement a using the dividend discount model.
d. Identify the reasons for any differences in the valuations in Requirements a-c.
e. Suppose the market value of AllInOne on January 1, Year+1, is $294.98 million. Based on your valuations in Requirements a-c, what is your assessment of the market value of this firm?
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