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damaskus [11]
3 years ago
5

Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = -$10 million, but it expects positive numbers thereaf

ter, with FCF2 = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14.0%, what is the firm's total corporate value, in millions?
Business
1 answer:
Alex777 [14]3 years ago
7 0

Answer:

Kedia Inc value:

$228.070.175,43

228.07 millions dollars

Explanation:

Next year Free Cash Flow: 10,000,000

Folllowing year: 25,000,000

from there, 4% increase

WACC = return = 14%

We use gordon model to know the present value of the future free cash flow growing at 4%:

FCF_0: 25,000,000

FCF_1: 25,000,000 x (1.04) = 26,000,000

\frac{FCF_1}{return-growth} = Intrinsic \: Value

\frac{26,000,000}{0.14-0.04} = Intrinsic \: Value

future FCF: 260,000,000

This is calculated 2 years ahead, thus we need to discount this by 2 years to ge the value today.

We also need to discount the 10,000,000 million in one year and the 25,000,000 millions in two year:

<u><em>For this task we use the present value of a lump sum:</em></u>

Discounted future cash flow:

\frac{FCF}{(1 + rate)^{time} } = PV  

future dividends growing at 4%: 260,000,000.00

time  2.00

rate  0.14

\frac{260000000}{(1 + 0.14)^{2} } = PV  

PV   200,061,557.40

\frac{25000000}{(1 + 0.14)^{2} } = PV  

future dividends of 25,000,000

PV      19,236,688.21

\frac{10000000}{(1 + 0.14)^{1} } = PV

future dividends of 10,000,000

PV        8,771,929.82

<u>Total value:</u> 200,061,557.4 + 19,236,688.21 + 8,771,929.82 = 228.070.175,43

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2 years ago
For each situation, prepare the appropriate journal entry for the redemption of the bonds.
Arada [10]

Answer and Explanation:

The journal entries are given below:

On Apr. 30

Bonds payable $124,000  

Loss on redemption of bonds( bal fig)   $18,228  

          Discount on Bonds payable($124,000 - $111,972) $12,028

          Cash ($124,000 × 1.05) 1,30,200

(Being redemption of bonds at 105 is recorded)  

On Jun. 30

Bonds payable $162,000

Premium on Bonds payable($174,960 - $162,000) $12,960  

          Gain on redemption of bonds ( bal fig) $14,580

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3 years ago
Cory issued a note to his creditor in exchange for an account. cory records the transaction by debiting
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I believe the answer is a. 
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3 years ago
Read 2 more answers
Jacob needed money for some unexpected expenses, so he borrowed $5,890.25 from a friend and agreed to repay the loan in seven eq
Anna11 [10]

Answer:

OPTION C i.e 11%

Option A i.e 30.55 year

Explanation:

we know that capital can be calculated as

Capital = EMI \times PVIFA

capital = EMI \times \frac{(1+r))^n -1}{r (1+r)^n}

from the data given in question we can calculate the value of r

so

5890.2 = 1250 \times \frac{(1+r))^7 -1}{r (1+r)^7}

4.7122 = \frac{(1+r))^7 -1}{r (1+r)^7}

solving for r we get

r = 11%

option C

we know that

Total\ saving  =  cash flow \times FVIFA

                      = Cash\ flow \times \frac{(1+r)^n -1}{r}

from the data given we can evealueate the value of n

8,452,622 = 40,000 \times \frac{(1.11)^n -1}{0.11}

\frac{8452622}{40000}\times 0.11 = (1.11)^n -1

solving for n we get

n = 30.55 year.

Option A

4 0
3 years ago
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