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tenerrorsQs - Ten Tasks for the Inferno I know that you are...

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Ten Tasks for the Inferno I know that you are busy but browse through the questions below and give them your best shot. They might be your pathway into or out of hell. 1. You are valuing Exxon Mobil, using the financial statements of the firm from 2007. The following table provides the key numbers: Revenues $477 billion EBIT (1-t) $ 58 billion Net Cap Ex $ 3 billion Chg WC $ 1 billion FCFF $ 54 billion The cost of capital for the firm is 8% and you use a very conservative stable growth rate of 2% to value the firm. The market cap for the firm is $373 billion and it has $ 10 billion in debt outstanding. a. How under or over valued is the equity in the firm? b. Would you buy the stock based on this valuation? Why or why not? 2. Assume that you have been asked to value a company and have been provided with the most recent year’s financial statements: EBITDA 140 - DA 40 EBIT 100 -Interest exp 20 Taxable income 80 Taxes 32 Net Income 48 Assume also that cash flows will be constant and that there is no growth in perpetuity . Which of the following is the free cash flow to the firm? 88 million (Net income + Depreciation) 108 million (EBIT – taxes + Depreciation) 100 million (EBIT (1-tax rate)+ Depreciation)
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