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Elodia [21]
3 years ago
9

Quantitative Problem 1: Assume today is December 31, 2017. Barrington Industries expects that its 2018 after-tax operating incom

e [EBIT(1 – T)] will be $450 million and its 2018 depreciation expense will be $65 million. Barrington's 2018 gross capital expenditures are expected to be $110 million and the change in its net operating working capital for 2017 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 9%; the market value of the company's debt is $3 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Using the free cash flow valuation model, what should be the company's stock price today (December 31, 2017)? Do not round intermediate calculations. Round your answer to the nearest cent. $ per share
Business
1 answer:
ziro4ka [17]3 years ago
3 0

Answer:

$29.630

Explanation:

For computation of stock price first we need to follow some steps which is shown below:-

Free cash flow = EBIT (1 - T) + Depreciation - Capital expenditure - Working capital

= $450 million + $65 million - $110 million - $30 million

=  $375 million

Value of firm = Free cash flow ÷ (WACC - Growth)

= $375 million ÷ (9% - 4.5%)

= $375 million ÷ 0.045

= $8,333.33 million

Value of equity = Value of firm - Value of debt

= $8,333.33 million - $3,000 million

= $5,333.33 million

Stock price = Value of equity ÷ Outstanding shares

= $5,333.33 million ÷ 180 million

= $29.630

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A growing trend to "Buy American" may encourage U.S. automakers to increase political pressure on Washington to pass legislation
Kazeer [188]

Answer:

C) a positive result from regulatory and economic environmental forces.

Explanation:

In the short run the whole economy will benefit, more American jobs will be created, consumers will probably get good cars at even lower prices, but on the long run the scenario may not be that good for everyone. If Toyota builds the plant, it will be the result of economic and political pressures, and that is a game that two can play, just ask farmers about the trade deal with China.

On the other hand, this is a type of deja vu (or been there, done that), and it ended up with GM and Chrysler bankrupt and Ford barely surviving. This types of policies were enforced in the 1980s by president Reagan and the famous "Made in the USA" by Bruce Springsteen. Back then Honda had a small factory and Toyota was starting to consider building a plant in the US, Nissan hadn't showed up yet. Fast forward a few years and the only good American vehicles are pickups, the Japanese brands wiped out the rest. The country is full of Camrys, Accords, Civics, Corollas, CRVs and Rav4s. They are great cars, too great for the American car manufacturers to compete against. Who knows, with this type of policies maybe in 10 years the only American car manufacturer left will be Tesla.

This is like playing with fire on top of a fuel truck.

5 0
3 years ago
How will a drastic fall in the price of necklaces affect the quantity of necklaces that rachel supplies? explain your answer. 12
Eduardwww [97]

Price and quality exist positively correlated.  A drastic fall in the price of a necklace shows a drastic fall in its quality.

<h3>What is price?</h3>

A price exists as the quantity of payment or compensation provided by one group to another in return for goods or services. In some situations, the price of production has various names. If the product exists as a "good" in the commercial exchange, the payment for this product will likely be named its "price".

A positive correlation exists as a connection between two variables that move in tandem—that is, in the same direction. A positive correlation exists when one variable decreases as the other variable declines or one variable increases while the other increases.  A positive correlation indicates that both variables change in the same direction. A negative correlation indicates that the variables change in opposite directions. A zero correlation signifies there's no association between the variables.

Price and quality exist positively correlated. The price of a product stands as a good indicator of its quality. You always have to spend a bit more for the best. The marketing literature has managed the usage of price as a surrogate for quality as a decision-making heuristic. That exists; the higher the price, the higher the quality.

Therefore, a drastic fall in the price of a necklace shows a drastic fall in its quality.

To learn more about positive correlation refer to:

brainly.com/question/17104826

#SPJ4

5 0
1 year ago
The analysis tool that lists products in descending order of their individual dollar contribution to the firm is:
Sonja [21]

Answer:

Product Life Cycle Analysis

Explanation:

6 0
2 years ago
On January 1, a company purchased a five-year insurance policy for $3,300 with coverage starting immediately. If the purchase wa
marissa [1.9K]

Answer:

a. Debit Insurance Expense. $660, credit Prepaid Insurance, $660.

Explanation:

The adjusting entry is shown below:

Insurance expense Dr $660 ($3,300 ÷ 5 years)

          To Prepaid insurance

(Being the insurance expense is recorded)

here we debited the insurance expense as it increased the expense and credited the prepaid insurance as it decreased the assets

Therefore the option a is correct

7 0
3 years ago
Ula purchased stock in Purple, Inc., six years ago for $150,000. Purple has assets with a value of $225,000 ($175,000 basis) and
elena55 [62]

Answer:

$15,000 gain

Explanation:

Assets with a value of $225,000

Remaining asset (cash) to Ula ($25,000)

Purple liabilities ($60,000)

Balance $140,000

Balance Brought forward $140,000

Remaining asset (cash) to Ula $25,000

Ula purchased stock ($150,000)

Balance $15,000 gain

Or

$225,000-$25,000-$60,000=$140,000+$25,000-$150,000=$15,000 gain

Therefore we have $15,000 gain.

3 0
3 years ago
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