Estimate the value of the firm equity

Assignment Help Financial Accounting
Reference no: EM132910274

In the year in which it intends to go public, a firm has revenues of $20 million and net income after taxes of $2 million. The firm has no debt, and revenue is expected to grow at 20% annually for the next five years and 5% annually thereafter. Net profit margins are expected remain constant throughout. Capital expenditures are expected to grow in line with depreciation and working capital requirements are minimal. The average beta of a publicly traded company in this industry is 1.50 and the average debt/equity ratio is 20%. The firm is managed very conservatively and does not intend to borrow through the foreseeable future. The Treasury bond rate is 6% and the tax rate is 40%. The normal spread between the return on stocks and the risk free rate of return is believed to be 5.5%. Reflecting the slower growth rate in the sixth year and beyond, the firm's discount rate is expected to decline to the industry average cost of capital of 10.4%.

Question 1: Estimate the value of the firm's equity

Reference no: EM132910274

Questions Cloud

Demonstrate to jason the ledger accounts : Demonstrate to Jason the ledger accounts (T-Ledger, double entry format) for the above unrelated transactions and also show any reversals as at 1 July
Summarize the main differences of IAS 17 and IFRS 16 : Summarize the main differences of IAS 17 and IFRS 16? Why can HKFRS 16 not reflect the commercial reality of how companies manage residual value risk
Confidence when faced with future workplace challenges : How can you draw upon that experience to boost your confidence when faced with future workplace challenges?
Four design engineers working on a project : A programming firm retains a technical specialist to assist four design engineers working on a project. The help that the specialist gives engineers ranges wide
Estimate the value of the firm equity : Estimate the value of the firm's equity. In the year in which it intends to go public, a firm has revenues of $20 million and net income
Can the data we generate or access be biased : Is it possible that data can contain the racial prejudices and biases we all (well....most of us) as humans are faulted with?
Compute the bad debts expense : Compute for the (1) bad debts expense, (2) ending balance of allowance for bad debts, and (3) carrying amount of accounts receivable on Dec. 31
What are the expected annual holding costs : Suppose a grocery store uses a P system for its inventory of apples, ordering once per week. Demand for apples averages 40 cases per week, with a standard devia
Explain why need to stress the importance of npv : you still need to continue to use less desirable measures such as the payback period and AAR, in addition to the NPV and IRR. Why do you think this is the case?

Reviews

Write a Review

Financial Accounting Questions & Answers

  What monitoring and reporting process does organisation use

What monitoring and reporting processes does your organisation use? How do you know if the implemented changes have been successful?

  Calculating the gds and tds ratios

Calculating the GDS and TDS Ratios: Calculate the gross debt service (GDS) and the total debt service (TDS) ratios for the data.

  Find net corrections to partner capital account for dd

In 2015, the partners of CC and DD Partnership shared net income and losses equally, Find Net corrections to partner's capital account for DD

  Prepare the entry to record the sale for putman company

Putman Company had cash sales of $75,950 (including taxes) for the month of June. Sales are subject to 8.5% sales tax. Prepare the entry to record the sale.

  Provide a theoretical analysis of the concept

Provide a theoretical analysis of the concept and process of accounting and accountability as it relates to a non-profit organization (NGO) in Fiji.

  How much would be willing to sell the contract for

Buy the contract from you. If you can earn 12 percent on other investments of this quality, how much would you be willing to sell the contract for?

  On 1st november 2011 olympic company adopted a stock option

on 1st november 2011 olympic company adopted a stock option plan that granted options to key executives to purchase

  Compute what is the project npv

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

  Prepare all necessary journal entries in 2017

Prepare all necessary journal entries in 2017 for both situations. What would be all the journal entries for both of these situations?

  Calculate initial cash outflow associated with replacement

Speedy Auto Wash is contemplating, Calculate the initial cash outflow associated with the replacement of existing washer with the new one.

  What is the beta for portfolio based on the invested amounts

Using the CAPM, if the expected return for the market is 6% and the risk-free rate is 1.5%, what is the expected return for each stock?

  How much is the goodwill on the date of acquisition

Pavilion Corp., How much is the carrying value of goodwill on December 31, 2020? How much is the goodwill on the date of acquisition?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd