Financial Statements, Cash Flow, and Taxes - Solutions3

Financial Statements, Cash Flow, and Taxes - Solutions3 -...

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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
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Old Exam Questions - Financial Statements, Cash Flow, and Taxes - Solutions Page 22 of 73 Pages stock, then determine what the intrinsic value of the company’s stock should be today (Year 0) on a per share basis. A. $29.25 B. $35.00 C. $37.50 * D. $33.75 E. $31.00 Total Enterprise Value = ($450,000,000) / (.12 - .08) = $11,250,000,000 Value of Stock = $11,250,000,000 - $4,500,000,000 = $6,750,000,000 Price = $6,750,000,000 / 200,000,000 = $33.75 20. Assume that your company has been given the following projections for the coming year: Sales = 20,000 units Sales price per unit = $10 Variable cost per unit = $7 Fixed costs = $15,000 Bonds outstanding = $43,950 K D on outstanding bonds = 7% Tax rate = 35% Shares of common stock outstanding = 10,000 shares Beta = 1.6 K RF = 8% K M = 12% Dividend payout ratio (DPR) = 40% Return on equity (ROE) = 20% Based on this information, determine what the current price per share should be. (Note: you may use the table below to help organize the data.)
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Financial Statements, Cash Flow, and Taxes - Solutions3 -...

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