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Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a surge in the demand for motor homes. The company expects free cash flow to grow at a rate of 20% for the next 4 years, after which there will be no growth (g = 0) in FCFF. The company’s last FCFF, FCFF0, was $1.50. The firm is consisted of 100% equity and has no debt. MHI’s beta is 1.5, the market risk premium is 6%, and the risk-free rate is 4%. Given there’s no debt, what is the current equity value of the firm using DCF model?
Keller Cosmetics maintains an operating profit margin of 8.20% and a sales-to-assets ratio of 3.30. It has assets of $540,000 and equity of $340,000. Interest payments are $34,000 and the tax rate is 35%. What is the return on assets? What is the ret..
If a firm buys trade credit terms of 4/15, net 60 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount ( assume a 360 -day year). The Annualized cost of trade credit terms of 4/15..
Ten years ago, Hailey invested $4,300 and locked in an 8 percent annual interest rate for 30 years (ending 20 years from now). Aidan can make a 20-year investment today and lock in a 10 percent interest rate. How much money should he invest now in or..
Imagine what the financial world would like look in both the U.S. and in the world if the Federal Reserve did not exist. Provide support for your rationale.
You are contemplating the purchase of a new $1,840,000 computer-based dairy cow feeding system. The system will be depreciated straight line over its ten year life and have no value at the end of its life. You will earn $530,000 per year from additio..
Uriah Heep celebrated his 18th birthday by opening a savings account at the Thames River Bank and depositing $1900. He continued to deposit the same amount on every subsequent birthday until he was 31 years old. The bank paid an interest rate of 3%. ..
You buy a share of The Ludwig Corporation stock for $18.60. You expect it to pay dividends of $1.09, $1.17, and $1.2559 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $31.90 at the end of 3 years. Calculate the growth rat..
Harrison Clothiers' stock currently sells for $31 a share. It just paid a dividend of $1.5 a share (that is, D0 = 1.5). The dividend is expected to grow at a constant rate of 4% a year. Hart Enterprises recently paid a dividend, D0, of $2.75. It expe..
Widget Company is considering upgrading its manufacturing equipment. The Vice-President of Production has identified three possible actions Widget could take to accomplish the upgrade. One option would upgrade their current equipment and the other tw..
Leyh’s Outdoor Adventures, Inc., would like begin providing life insurance coverage for its employees. Three employees are officers; each earns $100,000 per year. The other three employees each earn $40,000 per year. Evaluate this option and advise t..
You decide to buy 400 shares of stock at a price of $46 and an initial margin of 50 percent. What is the maximum percentage decline in the stock before you will receive a margin call if the maintenance margin is 21 percent? (Note: Make sure that you ..
1. The Los Angeles Lakers are sold for 650 Million. At a tax rate of 25% what is the new owner's yearly tax savings if he uses straight line depreciation of the purchase price over the full 15 years allowed by the IRS?
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