The present value of expected free cash flows

Assignment Help Financial Management
Reference no: EM132005724

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 Biggerstaff & 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% Suppose the free cash flow at Time 1 is expected to grow at a rate of gL forever. If gL < WACC, what is a formula for the present value of the expected free cash flows when discounted t the WACC? If the most recent free cash flow is expected to grow at a constant rate of gL forever (and gL< WACC), what is a formula for the present value of expected free cash flows when discounted at the WACC?

Reference no: EM132005724

Questions Cloud

Why do we do technical analysis on futures and securities : Why do we do risk management analysis on futures/securities? Why do we do technical analysis on futures/securities?
Future cash flows for project in perpetuity : Future cash flows for Project A grow by 4 percent in perpetuity. What is the present value of each project?
What is price of these three bonds in dollars : If the Treasury and corporate bonds have a par value of $1,000 and municipal bond has a par value of $5,000, what is the price of these three bonds in dollars.
Incremental annual cash flow from operations : Depreciation costs of the production plant are $48,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations?
The present value of expected free cash flows : what is a formula for the present value of expected free cash flows when discounted at the WACC?
Financial performance of its major competitors : comparing the last two years of financial performance to the financial performance of its major competitors.
Improved version of popular sporting product : Mylex Inc has just released an improved version of its popular sporting product and the world is beating a path to its door.
What was the annual growth rate : Annual dividends of Generic Electrical grew from $0.74 in 2012 to $1.11 in 2017. What was the annual growth rate?
Compute the current value of this stock : This dividend will grow at 13 percent indefinitely. Using a 15 percent discount rate, compute the current value of this stock.

Reviews

Write a Review

Financial Management Questions & Answers

  Example of which type of property agreement

Robert wants to sell his family farm for the fair market value of the property. He plans on inviting offers from interested parties, and when he determines the highest offered price, he will see if any of his children wish to purchase the farm at tha..

  What is new yield to maturity on the bond

What is the new yield to maturity on the bond? What is your rate of return over the year?

  What is the market value of equity

What is the market value of equity if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?

  What is fair interest rate on moore corporation bond

You are considering an investment in 20-year bonds issued by Moore Corporation. What is the fair interest rate on Moore Corporation 30-year bonds?

  Current bond price

Harrison Co. issued 13-year bonds one year ago at a coupon rate of 7 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a $1,000 par value?

  Calculate the debt-GDP ratio of our economy in period t

Calculate the debt-GDP (bt) ratio of our economy in period t.

  What is the firm current weighted average cost of capital

What is the firm's current weighted average cost of capital? What will the Weighted average cost of capital (WACC) be if they make this move?

  Ignoring transaction costs-is interest rate parity holding

Ignoring transaction costs, is the interest rate parity holding?

  Compute the year six future value of deposits

compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,500, $1,500, and $1,600.

  Absolute return advantage over other form of investment

Historically, both investment managers and investors were considering Hedge Fund Investment as one which has an “Absolute Return” advantage over other form of investment. But the 2007-09 financial crisis proved this claim as not sustainable. Please d..

  What is its times-interest-earned ratio

Graser Trucking has $10 billion in assets, and its tax rate is 30%. Its basic earning power (BEP) ratio is 20%, and its return on assets (ROA) is 6%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places

  What is its net asset value and offering price

The offering price of an open-end fund is $10.30 per share and the fund is sold with a front-end load of 4%. What is its net asset value?

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