Values are equal estimate the correct value of company

Assignment Help Financial Management
Reference no: EM131605925

A valuation exercise for an established company has resulted in a valuation of Rs 500 lacs, based on expected free cash flow of Rs 20 lacs next year and an expected growth rate of 5%. It was later found that the analyst made a mistake- he used the book value of debt and equity on calculations instead of market value. The book values are not available, but you know that:

a. Cost of equity is 12%

b. After Tax cost of debt is 6%

c. Market value of equity is thrice that of its book value and for debt both the values are equal Estimate the correct value of the company.

Reference no: EM131605925

Questions Cloud

What is the dollar value of my profit on the investment : The option expired today. What is the dollar value of my profit on the investment?
Principal will have been paid off after the first three year : How much interest will have been paid after the first three years of the mortgage? How much of the principal will have been paid off after the first three years
What is the required rate of return for stock alpha : Determine the market risk premium (RPM). What is the required rate of return for Stock Alpha?
Main features of common stock and preferred stock : List and explain the main features of common stock and preferred stock?
Values are equal estimate the correct value of company : Market value of equity is thrice that of its book value and for debt both the values are equal Estimate the correct value of the company.
Expand the business into new markets and products : Assume that you are the CEO of a small but growing business and you have decided that it is time to expand the business into new markets and products.
Index futures contract at futures price : On January 1, you sold one March maturity S&P 500 Index futures contract at a futures price of 1,300. what is your profit or loss?
What should futures contract with one-year maturity : What should a futures contract with a one-year maturity be selling for?
What is the apr and apy of the loan you give : Imagine you invest $400 in a discount bond that pays out $1000 in 10 years. What is the APR and APY of the loan you give?

Reviews

Write a Review

Financial Management Questions & Answers

  What will balloon payment be at the end of the fifth year

What will the balloon payment be at the end of the fifth year?- If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period?

  Recover the firms initial investment

The Bar-none manufacturing co. manufactures fence used in cattle feed lost throughout the Midwedst. bar-none management is considering three investment project for next year but doesn't one to make and any investment that requires more than three yea..

  Determine the service-related variance for patient days

Determine the service-related variance for Patient Days. Prepare a flexible budget estimate. Present aside-by-side budget, flexible budget estimate, and the actual Surgical Revenues.

  Current market interest rate

What is the market price of a 5% Coupon Bond that pays $1,000 face at maturity in 10 years from now? Current market interest rate (YTM) for such a bond is 8.0% (use semi-annual discounting)

  What is the maximum amount you would pay for this investment

what is the maximum amount you would pay for this investment?

  How much would he have to increase his monthly payment

John has budgeted to pay $50 each month on his credit card which has a $2,598 balance and has an annual finance rate of 19.9%. If John wants to pay the credit card off in 5 years, by how much would he have to increase his monthly payment?

  What is this projects equivalent annual cost

A five-year project has an initial fixed asset investment of $360,000, an initial NWC investment of $40,000, and an annual OCF of −$39,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..

  What is the npv of the replacement project

General Engine Corp. (GEC) has just finished minor renovations on their office building at a cost of $150,000. GEC originally allocated only $100,000 for this renovation. A memo from accounting suggests that the $50,000 cost overrun should be charged..

  Performing an accounting analysis

You are performing an accounting analysis on ABC Company and noted excessive goodwill balances relative to reported PPE.

  Optimal markups and prices under third-degree price

You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -4, while group 2’s is -3. Your marginal cost of producing the product is $20. Determine your optim..

  Calculate how much insurance coverage policy

When Carolina’s house burned down, she lost household items worth a total of $139,000. Her house was insured for $210,000 and her homeowner’s policy provided coverage for personal belongings up to 55 percent of the insured value of the house. Calcula..

  Firm current operations-equally as risky as the current firm

Bertelli's is analyzing a project with an initial cost of $55,000 and cash inflows of $33,000 a year for two years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. What is the projected ..

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