Homework Answers
| FCFF i.e. Free Cash Flow available to Firm is Cash which is available for both Equity and Debt. | ||||||
| FCFF can be determined by deducting Operating Cash Expenses and Capital Expenses from Revenue. | ||||||
| By using discounted Free Cash flow available to firm (FCFF) value of firm can be determined. | ||||||
| FCFE i.e. Free Cash Flow available for Equity Shareholders is available for potential equity shareholders. | ||||||
| By using discounted FCFE value of equity can be determined. | ||||||
| Valuation of firm using Free Cash Flow for Firm (FCFF) | ||||||
| Timeline | Year | FCFF | Dis. Factor | Dis. Value | ||
| A | B | C | D | E=CxD | ||
| 0 | 2019 | 800 | 1.0000 | 800.00 | ||
| 1 | 2020 | 960 | 0.9174 | 880.73 | ||
| 2 | 2021 | 1104 | 0.8417 | 929.21 | ||
| 3 | 2022 | 1214.4 | 0.7722 | 937.74 | ||
| 4 | 2023 | 1275.1 | 0.7084 | 903.28 | ||
| 5 | 2024 | 1338.9 | 0.6499 | 870.15 | ||
| 6 | 2025 | 1405.8 | 0.5963 | 838.28 | ||
| (A) | Total | 8,098.20 | 6,159.40 | |||
| Valuation of equity using Free Cash Flow for Equity Shareholders (FCFE) | ||||||
| Timeline | Year | FCFE | Dis. Factor | Dis. Value | ||
| A | B | C | D | E=CxD | ||
| 0 | 2019 | 880 | 1.0000 | 880.00 | ||
| 1 | 2020 | 1056 | 0.8696 | 918.30 | ||
| 2 | 2021 | 1214.4 | 0.7561 | 918.21 | ||
| 3 | 2022 | 1335.8 | 0.6575 | 878.29 | ||
| 4 | 2023 | 1402.6 | 0.5718 | 802.01 | ||
| 5 | 2024 | 1472.8 | 0.4972 | 732.28 | ||
| 6 | 2025 | 1546.4 | 0.4323 | 668.51 | ||
| (B) | Total Value of Equity | 5,797.59 | ||||
| Value of Firm is already determined, as % of debt if given in question | ||||||
| Value of Equity can be accessed by deducting value of debt from Value of Business. | ||||||
| Valuation of Equity using % of debt to Total assets | ||||||
| Options | Value of Business | % OF Debt | Value of Debt | Value of Equity | ||
| A | B | C | D=BXC | E=B-D | ||
| a | 6,159.40 | 44% | 2,710.14 | 3,449.26 | ||
| b | 6,159.40 | 47% | 2,894.92 | 3,264.48 | ||
| c | 6,159.40 | 50% | 3,079.70 | 3,079.70 | ||
| d | 6,159.40 | 53% | 3,264.48 | 2,894.92 | ||
| e | 6,159.40 | 56% | 3,449.26 | 2,710.14 | ||
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25. (CH18) An analyst correctly computes a company's current FCFF is $800 and FCFE is $880....
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51487 0879437 2 4 0123 2 789 22234568 0525 703 5 565 1153 925 5 2 2 11223 1 11122 12346791357 241...
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Taylor Company is considering the purchase of a new machine. The machine will cost $180,000 and is expected to last for 9 years. However, the machine will need maintenance costing $15,000 at the end of year four and maintenance costing $30,000 at the end of year eight. In addition, purchasing this machine would require an immediate investment of $32,000 in working capital which would be released for investment elsewhere at the end of the 9 years. The machine is expected...
51487 0879437 2 4 0123 2 789 22234568 0525 703 5 565 1153 925 5 2 2 11223 1 11122 12346791357 241 04 6875 2 7 iod 20- 01234567890 01234567890 20 TABLE 11.2A Present Value of $1 Periods 3.75% 0.9804 0.9612 0.9423 0.9238 0.9057 0.8880 0.8706 0.8535 0.8368 0.8203 0.6730 0.9709 0.9426 0.9151 0.8885 0.8626 0.8375 0.8131 0.7894 0.7664 0.7441 0.5537 0.9592 0.9201 0.8826 0.9524 0.9070 0.9259 0.8573 0.7938 0.7350 2 0.9290 0.9246 0.8890 0.8548 0.8219 0.7903 0.8900 0.8396 0.8734...
Q1: As a result of a slowdown in operations, Tradewind Stores is
offering employees who have been terminated a severance package of
$105,000 cash paid today; $105,000 to be paid in one year; and an
annuity of $34,000 to be paid each year for 3
years.
Q2: After completing a long and successful career as senior vice
president for a large bank, you are preparing for retirement. After
visiting the human resources office, you have found that you have
several...
XYZ Company is considering the purchase of a new machine. The machine will cost $200,000 and is expected to last ten years. However, the machine will need maintenance costing $25,000 at the end of year three and at the end of year seven. In addition, purchasing this machine would require an immediate investment of $30,000 in working capital which would be released for investment elsewhere -at the end of the 10 years. The machine is expected to have a $14,000...
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