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Oksi-84 [34.3K]
3 years ago
5

A company forecasts free cash flow in next year to be $20 million, $25 million in second year, and 30 million in third year. Aft

er the third year, free cash flow will grow at a constant rate of 5 percent per year. If the overall cost of capital (WACC) is 10 percent, what is the current value from operations, to the nearest million
Business
2 answers:
Norma-Jean [14]3 years ago
8 0

Answer:

Current value from operations is $534.71 million.

Explanation:

The value from operations can be calculated by discounting back the free cash flow of the firm. The first three year's FCF will be discounted back using the WACC and when the growth rate o FCF becomes constant after Year 3, the terminal value will be calculated and discounted back too.

The current value from operations = FCF1 / (1+WACC) + FCF2 / (1+WACC)² + FCF3 / (1+WACC)³  +  [FCF3 * (1+g)  /  WACC - g] / (1+WACC)³

Current value from operations = 20 / (1+0.1)  +  25 / (1+0.1)²  +  30 / (1+0.1)³  +  [30 * (1+0.05) / (0.1 - 0.05)] / (1+0.1)³

Current value from operations = $534.71 million

Travka [436]3 years ago
6 0

Answer:

$535 million

Explanation:

Value of operations = present value of next 3 years FCF + present value of terminal value at end of 3 years

Terminal value at end of 3 years = Year 3 FCF * (1 + constant growth rate after 3 years) / (WACC - constant growth rate after 3 years)

Present value = future value / (1 + required return)number of years

The required return is the WACC

Value of operations = $535 million

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When Patey Pontoons issued 10% bonds on January 1, 2021, with a face amount of $640,000, the market yield for bonds of similar r
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Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

1) Semiannually Rate of interest = 11% ÷ 2 = 5.50% = 0.055

Number of years (half yearly) = 4 × 2 = 8 years

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=1 ÷ (1 + 0.055)^8

= 1 ÷ 1.5347

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PVIFA Value = [1 -1 ÷ (1 + Interest Rate)^Number of years ÷  Interest Rate

= [1 - 1 ÷ (1 + 0.055)^8]  ÷ 0.055

= [1 - 0.65160] ÷ 0.055

= 6.33457

Particular  PV table value Multiply Amount  ($) PV value

Principle value  0.65160 × 640,000                          $417,024

Annually interest Value 6.33 ×     32,000                          $202,706

($640,000 × 6 ÷ 12 × 10%)  

Present Bond’s Price                                      $619,730

2).  

Journal Entry

On Jan.1,2021

Cash A/c         Dr.  $619,730

Discounts on bond payable A/c      Dr.  $20,270

 To Bond payable A/c         $640,000

(Being bond issued at discount is recorded)

3. The amortizable schedule is presented on the attachment below

4).

Journal Entry

June 30,2021

Interest expense A/c      Dr.  $34,085  

     To Cash A/c         $32,000

     To Discount on bond payable A/c    $2,085  

(Being interest expenses is recorded)  

5) On December 31,2021 Amount of bonds reported = $624,015

6). Interest expenses reported in income statement

= $34,085 + $34,200

= $68,285

7).

Journal Entry

On Dec. 31,2024

Interest expense A/c      Dr.  $35,032

   To Cash A/c         $32,000

   To Discount on bond payable A/c      $3,032

(Being interest expense is recorded)

On Dec.31,2024

Bond payable A/c       Dr.  $640,000

  To Cash A/c        $640,000

(Being interest expense is recorded)

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Electricity for All (EFA) is preparing for their Initial Public Equity Offering (IPO). Being in a highly regulated industry, and
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Answer:

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Explanation:

The computation of the dividend per share is shown below:

We now that

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Answer:

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