What is the value of operations

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Problem - Your employer, a midsized 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 temporarily 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%. Answer the following questions: What is the horizon value at Year 4? What is the total net operating capital at Year 4? Which is larger, and what can explain the difference? What is the value of operations at Year 0? How does the Year-0 value of operations compare with the Year-0 total net operating capital?

Reference no: EM132897963

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