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Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of Bigger staff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M's financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M's weighted average cost of capital (WACC) is 11%. Using this information answer the following question:
You have just learned that B&M has undertaken a major expansion that will change its expected free cash flows to -10 million in 1 year, $20 million in 2 years, and $35 million in 3 years. After 3 years, free cash flow will grow at a rate of 5%. No new debt or preferred stock was added; the investment was financed by equity from the owners. Assume the WACC is unchanged at 11% and that there are still 10 million shares of stock outstanding.
(1) What is the company's horizon value (its value of operations at year3)? What is its current value of operations (at time 0)
(2) What is its estimated intrinsic value of equity on a price-per-share basis?
The dividend is expected to grow at a constant rate of 10% a year. The required rate of return on stock, rs, is 20%. What is the stock's current value per share
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Assume that the risk free rate is the current 10 year Treasury bond rate. What is the required rate of return with a stock with a Beta of 1.1?
Bid and Ask quotes for the Euro (EUR) and Canadian Dollar (CAD) are given below:
General Importers announced today that its next annual dividend will be $2.60 per share. After that dividend is paid, the company expects to encounter some financial difficulties and is going to suspend dividends for five years. Following the suspens..
A stock will provide a rate of return of either −23% or 34%. a. If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a percent rounded t..
What would the company need in sale dollars to achieve the $100,000 profit level if they reduced price by 8 percent?
A company with a high return on equity but a low return on assets and a high total asset turnover must have.
What ex-dividend price per share will now make you indifferent between the two trading strategies?
Which one is false about calculating expected portfilio returns and variances?
What is the average receivables balance? What is the receivables turnover? Should the firm offer the discount?
Ferrell Inc. recently reported net income of $10 million. Assuming Ferrell's price/earnings ratio remains at its current level,
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