What percent of lcc value of operations

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You are working as a financial analyst for New Orleans Company (NOC). You have been requested by the chief financial officer to prepare data that would help NOC decides whether to purchase Lake Charles Company (LCC). LCC is a private company selling food products in all Louisiana parishes. LCC is owned by two partners, each with 5 million shares of stock. LCC currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. LCC's financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. LCC's weighted average cost of capital (WACC) is 11%. Answer the following questions.

1. If LCC undertakes the expansion, what percent of LCC's value of operations at Year 0 is due to cash flows from Years 4 and beyond? Hint: use the horizon value at t = 3 to help answer this question.

2. Based on your answer to the previous question, what are two reasons why managers often emphasize short-term earnings?

Reference no: EM132398314

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