If you use credit what are you creating
2 answers:
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Answer:
Explanation:
Let's first determine the free cash flow of the firm
Particulars Years
1 2 3
EBIT 540 680 750
<u>Tax at 36% (0.36*540) (0.36*680) (0.36*750) </u>
Less: 345.6 435.2 480
Net Capital -
Spending 150 170 190
<u>Change in NWC 70 75 80 </u>
Less: 125.6 190.2 210
The terminal value at the end of T =(3 years) is:
= 2011.26
Finally, the value of the firm can be computed as follows:
Years Free Cash Flow PVIF PV
1 125.6 0.6589 107.88
2 190.2 0.7377 140.31
3 210 0.6336 133.06
<u>Terminal Value 2011.26 0.6336 1294.33 </u>
<u>Value of the firm ⇒ $1655.58</u>
Answer:
$441,495
Explanation:
Since the information is incomplete, I looked for the missing part and found the attached information.
the current yield of a 1.5 years zero coupon bond = (100 / 89.9)¹/¹°⁵ - 1 = 0.0736 = 7.36%
the current yield of a 6 months zero coupon bond = (100 / 97.087)¹/⁰°⁵ - 1 = 0.0609 = 6.09%
now to calculate the future interest rate:
(1.0736²/1.0609) - 1 = 0.0865 = 8.65%
since we are told to determine the price of the bond:
(100/P)¹/¹°⁵ - 1 = 0.0865
(100/P)¹/¹°⁵ = 1.0865
100/P = 1.0865¹°⁵
100/P = 1.1325
100/1.1325 = P
P = 88.299
the expected price of the bond = 88.299% x $500,000 = $441,495
