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astra-53 [7]
3 years ago
5

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other

words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly’s stock. The pension fund manager has estimated Brandtly’s free cash flows for the next 4 years as follows: $3 million, $6 million, $8 million, and $16 million. After the fourth year, free cash flow is projected to grow at a constant 3%. Brandtly’s WACC is 9%, the market value of its debt and preferred stock totals $75 million; and it has 7.5 million shares of common stock outstanding. a. What is the present value of the free cash flows projected during the next 4 years? b. What is the firm’s horizon, or continuing, value? c. What is the firm’s total value today? d. What is an estimate of Brandtly’s price per share?
Business
1 answer:
Rama09 [41]3 years ago
7 0

Answer:

a. What is the present value of the free cash flows projected during the next 4 years?

the NPV of the firm's cash flows = $3/1.09 + $6/1.09² + $8/1.09³ + $16/1.09⁴ = $2,752,294 + $5,050,080 + $6,177,468 + $11,334,803 = $25,314,645

b. What is the firm’s horizon, or continuing, value?

to calculate terminal or horizon value at year 4, we must use the Gordon growth model formula:

terminal value = [$16,000,000 (1 + 3%)] / (9% - 3%) = $16,480,000 / 6% = $274,666,667

c. What is the firm’s total value today?

firm's total present value = $25,314,645 + ($274,666,667/1.09⁴) = $219,895,463

d. What is an estimate of Brandtly’s price per share?

Brandtly's share price = (firm's present value - total debt) / outstanding stocks = ($219,895,463 - $75,000,000) / 7,500,000 million stocks = $19.32 per stock

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8 0
2 years ago
Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current lia
erastova [34]

Answer:

The internal growth rate is 4.36%

Explanation:

net income = 8.3%*386,400

                   = $32,071.20

net working capital = current assets – current liabilities

current assets – 37200 = 16700

                                        = $53,900

total assets = current assets + net fixed assets

                   = 53,900 + 391,500    

                   = 445,400

Then:

ROA = 53,900/445400

        = 0.072005

b = 1 - 48% = 0.52

internal growth rate = 0.072005*0.52/1 - (0.072005*0.52)

                                 = 0.041763/0.958237

                                 = 4.36%

Therefore, The internal growth rate is 4.36%

7 0
3 years ago
Based on the advertising utilized, what do you surmise must have been the value proposition for iPhone at the time of its launch
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The launch campaign for the iPad started about two months before the iPad was schedule to beout on sale. This waiting period caused a huge buzz because everyone wanted to get their handson the iPad. The advertising the product was built up on teaser advertisements. Value propositionis a promise made by the company and belief of the customers regarding the value obtained fromthe product. The values perceived for the iPad was an electronic object that can be used forthings like work, listening to music, games, emails, and you can take it anywhere. So when itcould to the iPhone Apple launches the campaign the same way with a waiting period to create abuzz and teaser advertisements to get attentions. The values perceived for the iPhone is a littlemore than the iPad because it is an electronic object you can text, call, search the web with yourphones plans data and without Wi-Fi, but also be used for things like work, listening to music,games, emails, and you can take it anywhere.

6 0
3 years ago
The Davis Corporation budgeted factory overhead at $250,000 for the period for the Assembly department, based on a budgeted volu
Igoryamba

Answer:

B. $10,000 Underapplied

Explanation:

Hourly rate = $250,000/100,000 = $2.5 per hour

Excess hours = 4000

Excess over head = 4000 * 2.5 = $10,000

There was a $10,000 underapplied overhead for that period

8 0
3 years ago
What happens to the demand for
Ket [755]

Answer:

Demand decreases

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Substitute goods are products that can be used in place of each other. Goods are described as substitutes if a customer can use them interchangeably and get equal or almost the same satisfaction. Tea and coffee will be substitutes if a customer can consume either of them and be happy.

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3 years ago
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