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Artist 52 [7]
3 years ago
7

at is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Ye

ar 3.) Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. $ fill in the blank 2 million What is the firm's value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round your intermediate calculations. $ fill in the blank 3 million Suppose Dantzler has $119 million of debt and 5 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250. $ fill in the blank 4
Business
1 answer:
dybincka [34]3 years ago
7 0

Answer:

a. Horizon Value = $856 million

b. Firm’s value today = Value of Firm = $641.61 million

c. Current Price per Share = $32.72

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dantzler's WACC is 12%.

Year    FCF ($ millions)

0                    -

1                    -$18

2                    $25

3                    $40

a. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. million

b. What is the firm's value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round your intermediate calculations. million

c. Suppose Dantzler has $20 million of debt and 19 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.

The explanation of the answers is now given as follows:

a. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. million

Horizon Value = Year 3 FCF * (100% + Constant growth rate) / (WACC – Constant growth rate) = $40 * (100% + 7%) / (12% - 7%) = $856 million

b. What is the firm's value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round your intermediate calculations. million

Value of Firm = (Year 1 FCF /(100% + WACC)^1) + (Year 2 FCF / (100% + WACC)^2) + ((Year 3 FCF + Horizon value) / (100% + WACC)^3)

Value of Firm = (-18/(100%+12%)^1+(25/(100%+12%)^2)+((856+40)/(100%+12%)^3))

Value of Firm = $641.61 million

c. Suppose Dantzler has $20 million of debt and 19 million shares of stock outstanding. What is your estimate of the current price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.

Current Price per Share = (Value of Firm – Debt) / Number of shares of stock outstanding = (641.61 - 20) / 19 = $32.72

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Answer:

The analysis for this type of situation has been presented elsewhere here.

Explanation:

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Future value of an annuity: Carlos Menendez is planning to invest $3,500 every year for the next six years in an investment payi
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7 is the annual rate for 6 years
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Booth's fixed assets were used to only 50% of capacity during 2019, but its current assets were at their proper levels in relati
hoa [83]

This question is incomplete. The complete question is given below:

The Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017. Here is the December 31, 2016, balance sheet:

Cash  $  100  Accounts payable  $   50

Accounts receivable  200  Notes payable  150

Inventories  200  Accruals  50

Net fixed assets  500  Long-term debt  400

Common stock  100

Retained earnings  250

Total assets  $1000  Total liabilities and equity  $1000

Booth's fixed assets were used to only 50% of capacity during 2016, but its current assets were at their proper levels in relation to sales. Spontaneous liabilities and all assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 3% and its payout ratio to be 50%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

Answer:

Booth's additional funds needed (AFN) for the coming year = 370

Explanation:

Additional Funds Needed (AFN):

Additional Funds Needed (AFN) is a way of calculating how much new funding will be required, so that the firm can realistically look at whether or not they will be able to generate the additional funding and therefore be able to achieve the higher sales level.

Formula of AFN:

AFN = [ ( A / S0 ) * ΔS - ( L / S0 ) * ΔS - MS1 * ( RR ) ]

where

A = Assets linked with sales

Formula for Assets:

Assets = Cash + Account receivable + Inventories

As

Cash = 100

Account receivable = 200

Inventories = 200

therefore by putting the values in the above formula, we get

= 100 + 200 + 200

= 500

ΔS = Difference in sales between S0 and S1

S0 = Sales of last year

S1 = Total projected sales for next year

As the Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017 so

ΔS = 2000 - 1000

ΔS = 1000

L = Spontaneous liabilities

Formula for Spontaneous liabilities:

L = Accounts payable + Accruals

therefore by putting the values in the above formula, we get

L = 50 + 50

L = 100

MS1 = Projected net income

RR = Retention Ratio

M = 0.05

RR = 1 - 0.7

RR = 0.3

therefore by putting the values in the above formula, we get

Additional Funds Needed = ( 500 / 1000 ) * 1000 - ( 100 / 1000 ) * 1000 - 0.05 * 2000 * 0.3

Additional Funds Needed = 370

Therefore, Booth's additional funds needed (AFN) for the coming year = 370

6 0
3 years ago
Marpor Industries has no debt and expects to generate free cash flows of $16 million each year. Marpor believes that if it perma
tatyana61 [14]

Answer and Explanation:

The computation is shown below:

a.  Marpor's value without leverage is

But before that first we have to calculate the required rate of return which is

The Required rate of return = Risk Free rate of return + Beta × market risk premium

= 5% + 1.1 × (15% - 5%)

= 16%

Now without leverage is

= Free cash flows generates ÷ required rate of return

= $16,000,000 ÷ 16%

= $100,000,000

b. And, with the new leverage is

= (Free cash flows with debt ÷ required rate of return) + (Tax rate × increase of debt)

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= $93,750,000 + $14,000,000

= $107,750,000

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3 years ago
Ayala Architects incorporated as licensed architects on April 1, 2017. During the first month of the operation of the business,
ArbitrLikvidat [17]

Answer: (1) journal Total Dr $27,282, Cr $27,282 (2) cash Account Dr: Total $21,823, Cr Balance c /d $19,613 Total $21,823, salary payable Total Dr $381, Cr $381,Account receivable Account Dr :Total $1,929 Cr Total $1,929, salary expense Account Dr Total $ 1,524 Cr: $1,524, common stock Total Dr : $18,270 Cr: Total $18,270, Supplies Account Total Dr : $1,320, Cr $1,320, Account Payable Total Dr :$1,320, Cr :Total $1,320, service revenue Total Dr : $4,771, Total Cr : $4,771, unearned revenue Total Dr :$712, Total Cr :$711, (3) Trial Balance Total Dr $24,767, Total Cr : $24,767

Explanation:

(1) The journal entry for the transaction will be

Apr 1 Dr : Cash $18,270, Cr : common stock $18,270

Apr1 Dr: salary payable$381,Cr: cash $381

Apr 2 No entry required

Apr 3 Dr : supplies $1,320, Cr : Account payable $1,320

Apr 10 Dr Account Receivable $1,929, Cr : service revenue $1,929

Apr 11 Dr cash$ 711,Cr: unearned revenue$ 711

Apr 20 Dr: Cash $2,842, Cr : service revenue $2,842

Apr 30 Dr : $ Account Payable $305 Cr : Cash $305

(2) The T Account will be

Cash Account

Dr common stock $18,270, unearned revenue $711, service revenue $2,842

Cr : salary payable $381, salary expense $1,524, Account payable $305,Bal c/d $19,613 Total Dr $21,823, Cr : $21,823

Salary payable Account

Dr : cash $381,Cr: Balance c/d $381 Total Dr $381,Cr :$381

Account Receivable Account

Dr: service revenue $1,929, Cr: Balance c/d $1,929 Total Dr $1,929, Cr $1,929

Salary expense Account

Dr: salary expense $1,524, Cr Balance c/d $1,524, Total Dr $1,524,Cr $1,524

Common Stock

Dr : Balance c /d $18,270, Cr :Cash $18,270 Total Dr $18,270, Cr $18,270

Supplies Account

Dr: Account payable $1,320, Cr Balance c /d $1,320, Total Dr $1,320, Cr $1,320

Account Payable

Dr: Cash $305,Balance c/d $1,015, Cr supplies $1,320, Total Dr $1,320, Cr $1,320

Service Revenue Account

Dr Balance c /d $4,771 Cr : Account Receivable $1,929, cash $2,842, Total Dr $4,771, Cr $4,771

Unearned Revenue Account

Balance c/d $711, Cr cash $711, Total Dr $711,Cr $711

(3) The trial balance as on 30/04/2017

Dr: Cash $19,613, salary payable $381, supplies $1,320, Account Receivable $1,929, salary expense $1,524 Total $24,767

Cr : Common Stock $18,270, Account Payable $1,015, service revenue $4,771, unearned revenue $711 Total $24,767

6 0
3 years ago
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