Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions
Page 21 of 73 Pages
FCF = NOPAT - NIOC = $399 - $100 = $299
Proof:
FCF
$299.00
Interest Payment
- $ 26.00
Interest Tax Shelter +$ 10.40
Dividends
- $343.40
Total Needs
- $ 60.00
New Debt
+$ 60.00
Net Effect
$ 0.00
Total market value of the firm at Year 0 = ($299) / (.09 - .04) = $5,980
Total market value of the equity at Year 0 = $5,980 - $350 = $5,630
Intrinsic price per share = $5,630 / 1,000 = $5.63
18.
In addition to taxable earnings from operations of $350,000, your firm has also
received interest income of $27,000, paid interest of $56,000, received dividends of
$19,000, and paid dividends of $93,000. Using the corporate tax table in Appendix D
(end of this exam and you may assume that the average tax rate for the first $100,000
is 22.25% instead of 22.3%), calculate the amount of taxes that the firm will owe.
A.
$102,432
B.
$105,226
C.
$107,812
*
D.
$110,663
E.
$113,109
Answer: D
Earnings
$350,000
Interest Received
$ 27,000
Interest Paid
- $ 56,000
Dividends Received
$ 5,700
= ($19,000)(0.30)
Taxable Income
$326,700
Taxes = ($100,000)(0.2225) + ($326,700 - $100,000)(0.39)
Taxes = $22,250 + $88,413 = $110,663
19.
Assume that an analyst has examined your company and has estimated that the free
cash flow at the end of the year (Year 1) will be $450 million, that this free cash flow will
grow at a constant rate of 8 percent per year, and that your company’s weighted average
cost of capital is 12 percent. If the company currently has debt and preferred stock totaling
$4,500 million (4.5 billion), and if there are 200 million outstanding shares of common