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Lowell Information Technology, inc (LIT) had sales of $40.2 billion in 2009. Suppose you expect its sales to grow at a rate of 10% in 2013, but then slow by 1% per year to the long-run growth rate that is characteristic of the high-tech industry—5%—by 2018. Based on LIT’s past profitability an investment needs, you expect EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increase in sales, and capital expenditures to equal depreciation expenses.
a) If LIT has $2.3 billion in cash, $1.5 billion in debt, 793.6 million shares outstanding, a tax rate of 34%, and a weighted average cost of capital of 10%, what is your estimate of the value of LIT’s stock in early 2013?
b) What is your estimate of the value of LIT’s stock in early 2013 if the long-run growth rate is 4% after 2018?
c) What is your estimate of the value of LIT’s stock in early 2013 if a weighted average cost of capital of 8%?
Rust Pipe Co. was established in 1994. Four years later, the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. What is the percentage of the founder's family votes to Class B votes?
Regis Clothiers can borrow from its bank at 13 percent to take a cash discount. The terms of the cash discount are 2/20, net 50. Compute the cost of not taking the cash discount. Should the firm borrow the funds?
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A $20 Million 8-year bond pays 6.25% coupon with a 6% yield. Use the model to construct a 70% synthetic floater and 30% inverse-floater. The required synthetic has a 4% basis + 2% spread. Summarize your results including prices, price durations and c..
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