free_cash_flow_probs - Finance 254 Additional Free Cash...

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Finance 254 Additional Free Cash Flow Problems Problem 1: After-tax cash flow from financing The Hershey Kiss Corp. is considering the acquisition of Frozen Pizza, Inc. Since the Hershey Kiss Corp. has grown so large, the growth rate offered by its own mature business is low, causing it to search for new businesses that have higher growth rates, such as Frozen Pizza. The Hershey Kiss Corp, while impressed with the earnings and growth offered by Frozen Pizza, needs to calculate the free cash flows generated by the firm over the prior year. Looking at the financial statements, Hershey Kiss learns that Frozen Pizza was entirely equity financed a year ago. Over the last year, they issued $200,000 of 10-year bonds at par value with a coupon rate of 10%. Frozen Pizza has 1,000,000 shares of common stock outstanding a year ago, and common stock and paid-in-capital of $10,000,000 last year. Over the past year, the company decided not to pay their normal dividend of $0.25 per share and instead used those funds to repurchase common stock. What was Frozen Pizza’s free cash flow from the
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This note was uploaded on 09/19/2009 for the course FIN FIN 221 taught by Professor Fin221 during the Fall '09 term at University of Illinois, Urbana Champaign.

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