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erica [24]
3 years ago
14

Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acqui

sition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of a Biggerstaff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Answer the following questions.
a. Describe briefly the legal rights and privileges of common stockholders.
b. What is free cash flow (FCF)? What is the weighted average cost of capital? What is the free cash flow valuation model?
c. Use a pie chart to illustrate the sources that comprise a hypothetical company’s total value. Using another pie chart, show the claims on a company’s value. How is equity a residual claim? d. Suppose the free cash flow at Time 1 is expected to grow at a constant rate of gL forever. If gL < WACC, what is a formula for the present value of expected free cash flows when discounted at the WACC? If the most recent free cash flow is expected to grow at a constant rate of gL forever (and gL < WACC), what is a formula for the present value of expected free cash flows when discounted at the WACC?
Business
1 answer:
Anni [7]3 years ago
8 0

Answer:

a. Debt holders have first claim on corporate value. The Preferred stockholders then have next claim and remaining is left for common stockholders.

b. The value of a financial asset is equal to present value of future cash flows which is provided by the asset. When investor buys a share of stock, (s)he typically expects to receive cash in the form of dividends and to sell the stock to receive cash from sale. However, the price any investor receives is highly dependent upon the dividends which the next investor expects to receive, and so on. Thus, the stock's value depends on cash dividends that the company is expected to provide and the discount rate used to find the present value of those dividends.

d. The formula to calculate present value of expected free cash flows is:

PVn=CFn(1+in)n

The formula for the present value of expected free cash flows when discounted at WACC is:

PV=∑Nn=0CFn(1+in)n

Explanation:

a. Debt holders have first claim on corporate value. The Preferred stockholders then have next claim and remaining is left for common stockholders.

b. The value of a financial asset is equal to present value of future cash flows which is provided by the asset. When investor buys a share of stock, (s)he typically expects to receive cash in the form of dividends and to sell the stock to receive cash from sale. However, the price any investor receives is highly dependent upon the dividends which the next investor expects to receive, and so on. Thus, the stock's value depends on cash dividends that the company is expected to provide and the discount rate used to find the present value of those dividends.

d. The formula to calculate present value of expected free cash flows is:

PVn=CFn(1+in)n

The formula for the present value of expected free cash flows when discounted at WACC is:

PV=∑Nn=0CFn(1+in)n

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Answer and Explanation:

The computation of the current ratio and the acid ratio is shown below:

The current ratio is

= Current assets ÷ current liabilities

= ($96 + $88 + $176 + $12) ÷ ($86 + $29)

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= 3.23 times

And, the quick ratio is

= Quick assets ÷ current liabilities

= ($372 - $176) ÷  ($86 + $29)

= $196 ÷ $115

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Hence, the current ratio and the acid-test ratio is 3.23 times and 1.70 times respectively

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2 years ago
Question 11 Financial information is presented below: Operating expenses $ 33000 Sales returns and allowances 5000 Sales discoun
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Answer:

$38,000

Explanation:

in order to determine gross profit we must prepare the following:

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-sales discounts                ($3,000)

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3 years ago
Comparing the horizontal analysis of​ McDonald's financial statements to the horizontal analysis of Burger​ King's financial sta
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3 years ago
A. what will be the quantity demanded at $150 per game console? quantity demanded: game consoles
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Answer:

The answer is 13500$.

Explanation:

a) at P = 150$, Qd = 80.

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3 years ago
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