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ABC’s the most recent free cash flow (FCF0) is $50 million. The free cash flow is expected to grow at a rate of 30 percent, 20 percent, and 10 percent in each of the next three years. After three years, it is expected to grow forever at a constant rate of 5 percent. The cost of common stock (rs) is 15% and the weighted average cost of capital (WACC) is 12%. ABC currently has 100 million common shares of outstanding. Kay’s book value of debt and preferred stock is $20 million and $30 million respectively and the book values of debt and preferred stock are very close to market value of debt and preferred stock. ABC has $10 million marketable securities (beyond normal operation) and $ 5 million of minority investment in another company. Using Excel, calculate ABC’s stock price using FCF based valuation model and using “Two Way Data Table” of the Excel, show the sensitivity of the stock prices to the growth rate and the discount rate. (Use the first year growth rate from 20% to 40% in 2% increment and use a discount rate from 9% to 15% in 1% increment.)
This is my weekly homework Problem: a) What is the Eurodollar creation from a deposit of $2 million when the offshore banks maintain a 5 percent reserve? Assume that the 2 million is deposited in a London office of Barclays Bank, which makes a loan t..
Ideally a leading indicator of a variable of interest should be used as
TAB Inc. has a $1,000 (face value), 10 year bond issue selling for $1,184 that pays an annual coupon of 8.5 percent. What would be TAB's before-tax component cost of debt?
A U.S. corporation has purchased currency call options to hedge a 70,000 pound ( ) payable. The Premium is $0.02 and the exercise price of the option is $0.50. If the spot rate at the time of maturity is $0.65, what is the total amount paid by the co..
Sophia purchased a variable annuity contract with $50,000 purchase payment. Surrender charges begin with 7 percent in the first year and decline by 2 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year witho..
Given the vast resources available to mutual fund managers, these managers on average have generally:
Jasper is bequeathed a thirty year deferred annuity that has a payment at the the end of each third year. The first payment is for $15000 and is made five years after she receives inheritance. There is always an increase of $ 4000 from one payment to..
many corporate acquisitions result in losses to the acquiring firms stockholders. a coworker has asked you to explain
Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. T..
You have secured a loan from your bank for two years to build your home. The terms of the loan are that you will borrow $175,000 now and an additional $125,000 in one year. Interest of 9 percent APR will be charged on the balance monthly. What will y..
Suppose the current exchange rate between German Mark and US dollar is M 1.5581 per $, and the 90 days forward rate between these currencies is M 1.5493 per $. Which of the followings would impact the rating of a bond?
The U.S. Treasury maintains accounts at commercial banks. What would be the consequences if the Treasury shifted funds form those banks to the Fed? What would be the appropriate response by the Fed to keep the moneys supply at the desirable level?
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