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Elodia [21]
4 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]4 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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Ronch [10]

Answer:

you should accept the payments because they are worth $56,451.91 today

Explanation:

We have to determinate the present value of the proposed annuity of $641 per month over a ten year spawn

Then, the value of the annuity:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 641.00

time 120 (12 months x 10 years)

rate 0.005416667

641 \times \frac{1-(1+0.00541666666666667)^{-120} }{0.00541666666666667} = PV\\

PV $56,451.9083

5 0
3 years ago
Accrued revenues: Multiple Choice At the end of one accounting period result in cash receipts in a future period. At the end of
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Answer:

At the end of one accounting period result in cash receipts in a future period.

Explanation:

Accrued revenues is money owed by customers for goods bought or services purchased.

Accrued revenue is recorded as an asset on the balance sheet as receivables.

For example, if a customer buys a dress and is yet to pay for the dress. the amount the customer is supposed to pay is recorded as an accrued revenue at the end of the accounting period

Unearned revenue is money received by a company for services that are yet to be rendered.

8 0
3 years ago
Tee Time Golf Resort plans to use famous Kauri wood from New Zealand for parts of the interior of the magnificent clubhouse at i
LekaFEV [45]

Answer: C. it's a good time to buy the wood.

Explanation:

$500 = 738NZ dollars, therefore 738 NZ dollar ÷ $500 = 1.476NZ dollar

The current exchange rate is $1 = 1.476NZ dollar

10 foot slab costs $5000, Tee Golf Resort will pay $ 3387.53 ($5000/1.476NZ)

if they import wood from New Zealand. Tee Golf Resort will pay less than $5000 if they import Wood from New Zealand at the current exchange rate. This is a Good time for them to import woods

5 0
3 years ago
In 2019, Alliant Corporation acquired Centerpoint Inc. for $352 million, of which $62 million was allocated to goodwill. At the
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Answer:

1. $34 million

2. $0

Explanation:

Given that,

Fair value of Centerpoint Inc = $256 million

Book value of Centerpoint's net assets (excluding goodwill) = $228 million

Book value of Centerpoint's net assets (including goodwill) = 290 million

1. Actual Value of Goodwill:

= Fair Value of Centrepoint Inc. - Book Value of Net assets (excluding goodwill)

= $256 million - 228 million

= $28 million

Loss on Impairment of Goodwill:

= Goodwill recorded - Actual value of goodwill

= $62 million - $28 million

= $34 million

2. In this case Fair value of ($318 million) is more than Book value ($290 million) then there will be no Impairment Loss.

It means that the loss on Impairment of Goodwill = $0.

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