Determining the incremental cash flow projects

Assignment Help Business Management

Reference no: EM13971727

Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects:

Year	0	1	2	3
Sales (Revenues)		100,000	100,000	100,000
- Cost of Goods Sold (50% of Sales)		50,000	50,000	50,000
- Depreciation		30,000	30,000	30,000
= EBIT		20,000	20,000	20,000
- Taxes (35%)		7000	7000	7000
= unlevered net income		13,000	13,000	13,000
+ Depreciation		30,000	30,000	30,000
- capital expenditures	-90,000

The free cash flow for the first year of Epiphany's project is closest to:

a. $43,000

b. $25,000

c. $13,000

d. $45,000

Problems:

Use the following information to answer the question(s) below.

Company	Ticker	Price per Share	Earnings per Share	Book Value per Share
Abbott Labs	ABT	54.35	3.69	13.79
Bristol-Myers-Squibb	BMY	25.45	1.93	7.33
GlaxoSmithKline	GSK	41.3	3.15	6.03
Johnson & Johnson	JNJ	62.6	4.58	18.27
Merck	MRK	36.25	3.81	10.86
Pfizer	PFE	$18.30	$1.20	8.19

1. Assuming that Novartis AG (NVS) has an EPS of $3.35, what is the highest expected stock price for Novartis, based upon the P/E ratios for its competitors?

Problems:

1. What is an efficient portfolio?

2. Explain why the risk premium of a stock does not depend on its diversifiable risk.

Reference no: EM13971727

Questions Cloud

What are the earnings per share amounts : Porter owns none of these bonds. What are the earnings per share amounts that Porter should report in its current year consolidated income statement?

Npv for epiphany project : The free cash flow for the first year of Epiphany's project is closest to: The NPV for Epiphany's Project is closest to:

What is the value of the firm if you ignore taxes : The company is in the process of borrowing $8 million at 9% interest to repurchase 200,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?

Calculate circumference and area of the circle. : What are the two most important benefits of the Java language?

Determining the incremental cash flow projects : Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental ca..

Why they are important in business intranets and extranets. : Why is it increasing most important for a CIO or IT executive who oversees geographically distributed enterprise networks to be business literate?

What is your expected rate of return on the stock : There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?

Use the methods learned in class so far to analyze the data : Use the methods learned in class so far to analyze the data. Prepare a report for the PGA Tour commissioner that summarizes your analysis, including key statistical results, conclusions, and recommendations.

What is the ideal composition of curriculum evaluation team : What is the ideal composition of a curriculum evaluation team? What are some rules that will help an online curriculum evaluation team stay on track

User Account

All Pages