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soldi70 [24.7K]
3 years ago
14

Siebel Incorporated, a non-publicly traded company, has 2009 after-tax earnings of $25 million, which are expected to grow at 6

percent annually into the foreseeable future. The firm is debt-free, capital spending equals the firm's rate of depreciation; and the annual change in working capital is expected to be minimal. The firm's beta is estimated to be 2.5, the 10-year Treasury bond is 5 percent, and the historical risk premium of stocks over the risk-free rate is 6.0 percent. Publicly-traded Rand Technology, a direct competitor of Siebel's, was sold recently at a purchase price of 10 times its 2009 after-tax earnings, which included a 25 percent premium over its current market price. Aware of the premium paid for the purchase of Rand, Siebel's equity owners would like to determine what it might be worth if they were to attempt to sell the firm in the near future. They chose to value the firm using the discounted cash flow and comparable recent transactions methods. They believe that either method provides an equally valid. Estimate of the firm's value.
a What is the value of Siebel using the DCF method?
b What is the value using the comparable recent transactions method?
c What would be the value of the firm if we combine the results of both methods?
Business
1 answer:
Readme [11.4K]3 years ago
8 0

Answer:

Answer of each requirement is given seperatly below.

a What is the value of Siebel using the DCF method?

Value under DCF = CF * (1+growth rate)/ (WAAC" -Growth rate)

Putting values (assuming after tax earning is all in cash)

Value of SI = 25 (1+6%)/ 20%-6% = 189 million dollars

 

"WAAC calculation

Here WAAC is equal to cost of equity (ke) as company is debt free.

so

Ke = risk free rate + beta (risk premium)

    = 5 + 2.5 (6) = 20%

b What is the value using the comparable recent transactions method?

Based on recent tansaction the value of siebel incorporated will be               calculated as shown below

 Value of SI = Profit afte * 10 = 25 * 10 = 250 million dollars

Publicly-traded Rand Technology, a direct competitor of Siebel's sale is taken as bench mark.

c What would be the value of the firm if we combine the results of both methods?

By combining value of both value technique we get 189 + 250 = 439 million dollars.

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aleksklad [387]

Answer:

Part a: According to Solow model higher per capita real GDP will be in Chile because of its highest saving rate.

Part b: The per capita capital stock or the labour ratio is the primary factor for these differences in the simple Solow model.

Explanation:

<em>Part a:</em>

According to Solow model higher per capita real GDP will be in Chile because of its highest saving rate.

In Solow model the GDP per capita is defined as

                                           y=k^{\alpha}=f(k)

Also the steady state path is given as

sf(k)=(s+n)k\\\frac{s}{s+n}=\frac{k^*}{f(k^*)}\\\frac{s}{s+n}=\frac{k^*^{\alpha-1}}{k^*}\\\frac{s}{s+n}={k^*^{\alpha-2}}

As all other parameters are same thus the country with higher value of s will have a higher per capita GDP.

According to the Solow model, higher saving rate means larger capital stock and high level of output at the steady state.

Higher saving rate leads to faster growth in Solow model. So there is higher per capita real GDP for the country that has higher saving rate.

<em>Part b:</em>

In Simple Solow Model, the steady state per Capita GDP, y^* is the function of the steady state per capita capital stock given as k^*

Now this indicates that

y^*=f(k^*)

where f is an increasing concave function i.e. f'>0 and f''<0

Thus the sole dependence of per capita GDP is on per capita capital stock.

Thus the per capita capital stock or the labour ratio is the primary factor for these differences in the simple Solow model.

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3 years ago
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Bavarian Chocolate Company processes chocolate into candy bars. The process begins by placing direct materials (raw chocolate, m
vredina [299]

Solution:

Working notes:  

Calculate opening work in process inventory for conversion costs as shown below:  

Opening work in process

inventory for conversion costs  =  1-  \frac{1}{5} = 2/5

= 40 %  

Calculate units started and completed in October as shown below:  

Units started and completed in July = ( Units transferred out — opening work in process inventory  

= 25, 700 units — 2,300 units = 23, 400 units  

Calculate whole ending work in process inventory in October as shown below:  

Opening work in process inventory + Whole ending work in ) = in October process inventory Received from material storeroom — Transferred to packing department  )  

= 2,300 units + 26,000 units — 25, 700 units = 2, 600 units  

Calculate ending work in process inventory for conversion costs as shown below:  

Ending work in process inventory for conversion costs  )  

(Total units for ending work in process inventory x Completed percent for conversion costs = 2, 600 units x 1 = 520 units  )  

Equivalent units for production is calculated by adding units of opening work in process inventory, transferred to finished goods in October, and units for ending work in process inventory. Therefore, an equivalents unit for production for direct materials is 26,000 units and equivalent units for production for conversion costs is 24,840 units.  

Calculate direct materials and conversion cost equivalent cost per unit for October as shown below:  

Direct material cost per unit — Total direct material costs  Equivalent units for direct materials 8429,000  — 26,000 units = $16.50 Per unit  

Conversion cost per unit — Total conversion costs  Eqtuv' aka! units for conversion $149,040 — 24,840 units  

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3 years ago
Harrison owns a convertible bond with an 6% annual coupon and a $1,000 face value. It matures in 15 years and can be exchanged f
raketka [301]

Answer:

$953

Explanation:

According IFRS the equity and Liability portion of a bond should be recorded separately at the time of bond Issuance. The Liability portion can be calculated current value of the similar non convertible bonds and the difference between the Present value of cash flows and total proceeds from bond is the equity value.

Convertible Bond are value at the present value of their cash flows.

Use following formula to calculate the value of the bond.

Value of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]

Value of the Bond = ($1,000 x 6%) x [ ( 1 - ( 1 + 6.5% )^-15 ) / 6.5% ] + [ $1,000 / ( 1 + 6.5% )^15 ]

Value of the Bond = $952.99

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jeyben [28]

Answer:

The correct answer is letter "D": does not require estimates of bad debt losses.

Explanation:

There are mainly two approaches while recognizing bad debts (unpaid debts):  <em>the allowance method </em>and <em>the direct write-off method</em>. Using the allowance method the unpaid account receivable goes through a series of stages until it is recognized as a bad debt. There are no set criteria to do so. When the firm eventually recognizes and calculates the amount of a bad expense, it is recorded in an allowance account. The negative balance diminishes the company's revenue.

The direct write-off method does not generate any allowance account. The account receivable is simply written-off after the company determines the debt as uncollectible. Thus, there is no need to estimate bad debt losses using this approach.

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