Determination of mva, Janjigian Company's stockholders have

Determination of mva

Reference no: EM1351532

i. Over the years, Janjigian Corporation's stockholders have provided $15,250 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings. The firm now has 1,000 shares of common stock outstanding, and it sells at a price of $42.00 per share. What is Janjigian's MVA?

a. $21,788
b. $22,935
c. $24,142
d. $25,413
e. $26,750

i. TSW Inc. had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000. Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500. How much free cash flow did the firm generate during the just-completed year?

a. $383
b. $425
c. $468
d. $514
e. $566

iii. Bae Inc. has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

Sales $2,000.00
Costs 1,200.00
Depreciation 100.00
EBIT $ 700.00
Interest expense 200.00
EBT $ 500.00
Taxes (35%) 175.00
Net income $ 325.00

a. $370.60
b. $390.11
c. $410.64
d. $432.25
e. $455.00

iv. Barnes' Brothers has the following data for the year ending 12/31/07: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100. Barnes' weighted average cost of capital is 10%. What is its economic value added (EVA)?

a. $399.11
b. $420.11
c. $442.23
d. $465.50
e. $490.00

v. Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital. How much free cash flow did Wells generate?

a. $1,770.00
b. $1,858.50
c. $1,951.43
d. $2,049.00
e. $2,151.45

vi. Vasudevan Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

Year: 1 2 3
Free cash flow: -$20 $42 $45

a. $586
b. $617
c. $648
d. $680
e. $714

Problem 2

A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, and you were hired to advise the firm on the best procedure. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?

WACC: 13.00%
0 1 2 3 4
CFS -$1,025 $375 $380 $385 $390
CFL -$2,150 $750 $759 $768 $777

Problem 3

Webster Widgets is considering a new project whose data are shown below. The equipment, if purchased, would be depreciated using the MACRS method over its 3-year useful life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?

WACC 10.0%
Net cost of the equipment $65,000
Sales revenues, each year $60,000
Annual operating costs excluding depreciation $25,000
Tax rate 35.0%

Reference no: EM1351532

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