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Marizza181 [45]
3 years ago
15

Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax

rate was 36%.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%), trading at par (up from $3.8 billion at the end of 1992). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Union Pacific paid 40% of its earnings as dividends and working capital requirements are negligible. (The treasury bond rate is 7%.)A. Estimate the free cash flow to the firm in 1993.B. Estimate the value of the firm at the end of 1993.C. Estimate the value of equity at the end of 1993, and the value per share, using the DCF approach.
Business
1 answer:
levacccp [35]3 years ago
5 0

Answer

The answer and procedures of the exercise are attached in the following archives.

Explanation  

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.  

Download xlsx
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Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 unit
murzikaleks [220]

Answer:

yep

Explanation:

Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods:

Available Methods to Reduce Pollution

1. The government sets pollution standards using regulation.

2. The government allocates tradable pollution permits.

Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive.

Firm X 80 130 210

Firm Y 75 90 130

Firm Z 550 700 1,075

Now, imagine that two government employees proposed alternative plans for reducing pollution by 6 units.

Method 1: Regulation

The first government employee suggests to limit pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its pollution by 2 units.

Complete the following table with the total cost to each firm of reducing its pollution by 2 units.

Firm Total Cost of Eliminating Two Units of Pollution (Dollars)

Firm X

Firm Y

Firm Z

Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit to firm Y at an agreed-upon price, then firm Y would end up with three permits and would need to reduce its pollution by only 1 unit while firm X would end up with only one permit and would have to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless. Because firm Y has high pollution-reduction costs, it thinks it might be better off buying a permit from firm Z and a permit from firm X so that it doesn't have to reduce its own pollution emissions. What prices is firm Z willing to sell one of its permits to firm Y, but firm X is not?

8 0
3 years ago
A budget based on several different levels of activity, often including both a best-case and worst-case scenario, is called a:
Kaylis [27]

Answer:

Flexible budget.

Explanation:

7 0
2 years ago
Read 2 more answers
A development process __________. ANSWER Unselected addresses the main value-added activities of an organization Unselected is a
cluponka [151]

Answer:

process that seeks to improve the performance of primary and support processes.

Explanation:

Development process is defined as a seeks improvement of primary and support activities by using strategy, organisation, marketing, conceptualisation, plan creation, evaluation, and commercialisation of a product or process.

Development process is used by firma to convert viable ideas to profitable products.

Innovative ideas are generated by the companie's team, and through critical evaluation the best and most commercially viable option is chosen for further product development.

This is a cycle that is continous and gives the innovative company a competitive edge.

5 0
3 years ago
Read 2 more answers
Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri'
kvv77 [185]

Answer:

$46,666.67

Explanation:

Henri earned a salary of $50,000 in 2001

He earned $70,000 in 2006

The consumer price index in 2001 was 177 and in 2006 was 265.5

Therefore his salary in 2001 can be calculated as follows

= 70,000/265.5 × 177

= 263.65 × 177

= 46,666.67

3 0
2 years ago
On January 1, 2021, Essence Communications issued $800,000 of its 10-year, 8% bonds for $700,302. The bonds were priced to yield
aev [14]

Answer:

A)

before decrease in rates: 706,483

   after rate decrease:            751,360

B)

interest expense 35,015.12

discount on BP 3,015.12

cash 32,000

--bonds first interest payment--

C)

interest expense 35,165.87

discount on BP       3,165.87

cash              32,000

--second interest payment--

D)

unrealized loss 44,877

  discount on bonds payable  44,877

--to adjust bonds valuation--

Explanation:

First, we solve for the present value of the bond to get the proceeds from the issuance.

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

C 32,000

time 20

rate 0.05

32000 \times \frac{1-(1+0.05)^{-20} }{0.05} = PV\\

PV $398,790.7310

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   800,000.00

time   20.00

rate  0.05

\frac{800000}{(1 + 0.05)^{20} } = PV  

PV   301,511.59

PV c $398,790.7310

PV m  $301,511.5863

Total $700,302.3173

Now, we do the table for the first year:

# / Principal/      paid /    interest /       Amort/End. P

1 700,302 32000 35015.12 3015.12 703,317

2 703,317 32000 35165.87 3165.87 706,483

Now, we have to redo the calculations for the bonds market value considering a decrease in the market rate to 9%

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

C 32,000

time 18

rate 0.045

32000 \times \frac{1-(1+0.045)^{-18} }{0.045} = PV\\

PV $389,119.7377

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   800,000.00

time   18.00

rate  0.045

\frac{800000}{(1 + 0.045)^{18} } = PV  

PV   362,240.30

PV c $389,119.7377

PV m  $362,240.2951

Total $751,360.0328

We adjust for: 751,360 - 706,483 = 44,877

This will be an unrealized loss as the liability increases but, will be realized on the redemption of the bonds or at the end of the bonds' life.

3 0
3 years ago
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