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Tema [17]
2 years ago
13

Michonne Corp.'s Free Cash Flow (FCF) for the most recent year (year 0) is $730 (million). FCF is expected to grow by 14% next y

ear (1 year from now), by 10% the year after that (2 years from now), and by 5% per year thereafter. Michonne's WACC is estimated at 8%. The estimated Enterprise Value (Value of Operations) for Michonne is $____________(million).
Business
1 answer:
kipiarov [429]2 years ago
8 0

Answer:

enterprise value = $29,024.26 million

Explanation:

first we must calculate the terminal value in year 2:

terminal value = FCF₃ / (WACC - g)

  • FCF₃ = $730 x 1.14 x 1.1 x 1.05 = $961.191
  • WACC = 8%
  • g = 5%

terminal value = $961.191 / (8% - 5%) = $32,039.70

enterprise value = $832.2/1.08 + $915.42/1.08² + $32,039.70/1.08² = $770.556 + $784.825 + $27,468.879 = $29,024.26 million

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Divine plc is a pure-honey producing plant. The firm wants to replace its aging processing machine. One option is to purchase a
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Answer:

Project A

Years      Cashflows     Discount factor     Present values

0            250,000                    1                           -250,000

1-10            45,100                   6.144                     277,094.40

Sum of all present value=NPV=27,094.40

IRR (by using trial and error method) = 12.4696%

Note: Discount factor for the year 1-10 is calculated by using annuity formula i.e [1-(1+10%)]/10% = 6.144

Project B

Years Cashflows Discount factor  Present values

0        (350,000)           1                              (350,000)

1           72,500               0.91                   65,975  

2           65,500               0.83                    54,365  

3           73,800                  0.75                    55,350  

4            71,500                  0.68                    48,620  

5           69,800                  0.62                   43,276  

6           75,500             0.56                   42,280  

7           31,000                  0.51                            15,810  

8           47,500                  0.47                           22,325  

9           55,500                  0.42                   23,310  

10           29,200                  0.38                    11,096

Sum of all present values=NPV=32,407

IRR(by using trial and error method=12.4186%

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b)The conflict between both the investment appraisal technique is likely due to different cash flow patterns of both the project. In such situation decision should be based on NPV because this is an absolute measure

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3 years ago
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D. making profits on sales
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Answer:

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