fm15 10 - 0 1 2 3 4 N | | | | | | -5 10 20 $ -4.545 8.264...

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Mini Case: 15 - 10 f. 1. The second acquisition target is a privately held company in a growing industry. The target has recently borrowed $40 million to finance its expansion; it has no other debt or preferred stock. It pays no dividends and currently has no marketable securities. KFS expects the company to produce free cash flows of - $5 million in one year, $10 million in two years, and $20 million in three years. After three years, free cash flow will grow at a rate of 6%. Its WACC is 10% and it currently has 10 million shares of stock. What is its horizon value (i.e., its value of operations at year three)? What is its current value of operations (i.e., at time zero)? Answer:
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Unformatted text preview: 0 1 2 3 4 N | | | | | | -5 10 20 $ -4.545 8.264 15.026 398.197 $416.942 = Value Of Operations f. 2. What is its value of equity on a price per share basis? Answer: Value of equity = value of operations - debt = $416.94 - $40 = $376.94 million. Price per share = $376.94/10 = $37.69. g. KFS is also interested in applying value-based management to its own divisions. Explain what value-based management is. Answer: VBM is the systematic application of the corporate valuation model to all corporate decisions and strategic initiatives. The objective of VBM is to increase market value added (MVA). 3 op V = 530 = 06 . 10 . ) 06 . 1 ( 20 + r c = 10% g = 6%...
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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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