FIN534assignchap13Hard

FIN534assignchap13Hard - Chapter 13 1. Suppose Leonard,...

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Chapter 13 1. Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations? a. $1,714,750 b. $1,805,000 c. $1,900,000 d. $2,000,000 FCF*(1+ growth rate)/(WACC – growth rate) , CF / (1+WACC)^t, t – time period 100000 (1+0.06)/(.11-0.06) = 2120000, CFs = $90090.09 + 1909909.91 = 2000000 e. $2,100,000 2. Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments). Year: 1 2 Free cash flow: -$50 $100 a. $1,456 1 (50.00) (45.05) 2. 100.00 81.16 3 1750.00 1420.34 Net Present Values 1456.46 b. $1,529 c. $1,606 d. $1,686 e. $1,770
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This note was uploaded on 03/07/2012 for the course FIN 534 taught by Professor Nalla during the Spring '08 term at Strayer.

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FIN534assignchap13Hard - Chapter 13 1. Suppose Leonard,...

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