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Quantitative Problem: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. FCF yr1 -$22.32 yr2 $37.9 yr3 $43.8 yr4 $52.4 yr5 $55.2 The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 5% rate after Year 5. The firm has $25 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations. $ per share According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock.
Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $32 million, a maturity of 15 years, and a yield to maturity of 10%. The coupons are paid annually. What is the before-tax cost of debt for Olympic? What ..
The current exchange rate between French franc and US dollar is FF 5.529 per dollar. Last month this rate was FF 5.491 per dollar. a) FF has appreciated b) US $ has depreciation c) FF has depreciated d) US $ has appreciated
D’Angelo Barksdale is considering an annuity which costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.50 percent. What is the length of the annuity time period?
Stock R has a beta of 2.1, Stock S has a beta of 0.45, the expected rate of return on an average stock is 9%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
Apple is under pressure from the Federal Bureau of Investigations and the Justice Department for access to phones belonging to shooters who killed 14 people in San Bernardino, California, late last year. Tim's message to customers. How does he balanc..
The use of debt in the capital structure of a company increases leverage. Leverage can be effectively used to increase the returns available to the shareholders. Critically evaluate showing examples the use of debt financing and leverage in the capit..
A firm has an expected perpetual EBIT = $6,000. The unlevered cost of capital = 8% and there are 20,000 shares of stock outstanding. The firm is considering issuing $10,000 in new par bonds to add financial leverage to the firm. What is the value of ..
You have just turned 22 years old. Now you must decide how much money to put into your retirement plan. The plan works as follows: Every dollar in the plan earns 6.6% per year. You cannot make withdrawals until you retire on your 65th birthday. You w..
The internal rate of return is
When changing the risk free rate from 3% to 6%, the option value changes from $7.16 to $8.33. Explain why this change affects the value of the option?
Dynamics Telecommunications Corp. has made an investment in another company that will guarantee it a cash flow of $30,000 each year for the next five years. If the company uses a discount rate of 11 percent on its investments, what is the present val..
Your firm, General Hospital currently uses zero debt financing. Its operating income (EBIT) is $1 million and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the fi..
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