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Question
Use the financial statements shown below to answer the next three questions. Free cash flow is expected to grow at 3 percent after 2017. The weighted average cost of capital is 7.18 percent.
The bonds are currently selling at 97.5% of par. The preferred stock has a current market value of $8,000.
Balance Sheet
Actual
2016
Projected
2017
Cash
10,000
15,000
Accounts payable
20,000
35,000
Marketable securities
Notes payable
0
Accounts Receivable
25,000
Accruals
Inventory
40,000
55,000
Total current liabilities
45,000
Total Current Assets
95,000
115,000
Long term bonds
Preferred Stock
5,000
Common stock (par + PIC)
50,000
90,000
Retained earnings
30,000
Net fixed assets
85,000
Total common equity
80,000
125,000
Total assets
140,000
200,000
Total liabilities & equity
Income Statement
Actual 2016
Projected 2017
Sales
400,000
600,000
Operating expenses
378,500
450,000
Depreciation
3,000
3,500
Earnings before interest & taxes
18,500
146,500
Interest
2,500
Earnings before taxes
16,000
143,500
Taxes
8,000
71,750
Net income before preferred dividends
Preferred dividends
1,000
Net Income available for common
7,000
70,750
Common dividends
1,500
65,750
Addition to retained earnings
5,500
Number of shares
6,000
1. What is the free cash flow for 2017?
2. What is the value of operations as of 2016?
3. What is the price per share for 2016?
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