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Grader Construction Company has just hired you as a consultant to value the company for possible sale. Last year they had EBIT of $25 million. The firms tax rate is 35%, Depreciation expense was $5.00 million and expected to remain at 20% of EBIT for the foreseeable future. The firm in the past has and to make an investment of operating fixed assets of 10% of EBIT each year and a investment of 5% of EBIT in net operating working capital each year. These ratios are expected to remain constant for the foreseeable future. EBIT is expected to grow by 10% this coming year and by 10% each of the following 4 years. After that they are expected to grow at rate of 5.00% per year. The firm has a cash balance of $10 million and has bonds of $100 million par value outstanding with a coupon of 5.00% and a maturity of 10 years. The YTM on similar bonds is 4.35%. Assuming that the firm’s WACC is 8.25%, what is the value of the companies operations? If there are 2 million shares outstanding, what is the value of each share of the company?
For an individual planning to retire in ten years, with a thirty-year life expectancy in retirement, and with living expenses that will grow with inflation, what is the risk-free investment?
The U.S. Treasury maintains accounts at commercial banks. What would be the consequences if the Treasury shifted funds form those banks to the Fed? What would be the appropriate response by the Fed to keep the moneys supply at the desirable level?
Returns Year X Y 1 11 % 18 % 2 25 26 3 11 10 4 – 18 – 23 5 10 17 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y.
You want to buy a house, and you can make an initial payment of $20,000 and can afford monthly payments of at most $1,500. If the APR on variable-rate mortgage loans is 3.6% and you finance the purchase over 30 years, what is the maximum price you ca..
An investor purchases two bonds, one matures in 5 years and the second is a perpetuity. Both bonds have a coupon rate of interest of 7% which is also the initial yield to maturity. You buy a 6-year zero coupon bond for $632 today. Two years from now,..
A firm is considering an investment in a new machine with a price of $18.03 million to replace its existing machine. The current machine has a book value of $6.03 million and a market value of $4.53 million. What is the NPV of the decision to purchas..
Identify three alternative methods to the dividend discount model for the valuation of companies.
Your task is to analyze two mutually exclusive projects: Using the payback criterion, which investment should you chose? Why? Using the discounted payback criterion, which investment should you chose? Why? Using the NPV criterion, which investment sh..
Bill’s Bakery expects earnings per share of $3.14 next year. Current book value is $5.1 per share. The appropriate discount rate for Bill’s Bakery is 13 percent. Calculate the share price for Bill’s Bakery if earnings grow at 4.8 percent forever.
The Thomas Co. is analyzing a proposed expansion project. Currently, the company owns 15 acres of land, which it purchased for $6 million 5 years ago. The land is currently valued at $7.2 million and is totally debt-free. The bonds are currently pric..
Assume an after-tax saving interest rate of 6 percent and a tax rate of 28 percent.
Mountain Minerals pays a constant annual dividend. One year ago, when you purchased shares of that stock at $40 a share, the dividend yield was 6.5 percent. Over this past year, the inflation rate has been 3.2 percent. Today, the required return on t..
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