Homework Answers
| A | B | C | D | E | F | G | H | I | J | K |
| 2 | ||||||||||
| 3 | a) | |||||||||
| 4 | ||||||||||
| 5 | Net cash flows without tablet line | $100,000 | ||||||||
| 6 | Firm discount rate | 15% | ||||||||
| 7 | Since the firm net cash flow will be constant in perpetuity, therefore | |||||||||
| 8 | ||||||||||
| 9 | Value of the firm without tablet line | =PV of constant perpetuity | ||||||||
| 10 | =$100,000 / 15% | |||||||||
| 11 | $666,666.67 | =D5/D6 | ||||||||
| 12 | ||||||||||
| 13 | Number of shares outstanding | 200,000 | ||||||||
| 14 | ||||||||||
| 15 | Price per share of the firm without tablet line | =Value of the firm without tablet line / Total number of shares outstanding | ||||||||
| 16 | =$666,666.67 / 200,000 | |||||||||
| 17 | $3.33 | =D11/D13 | ||||||||
| 18 | ||||||||||
| 19 | Hence Price per share of the firm without tablet line | $3.33 | ||||||||
| 20 | ||||||||||
| 21 | b) | |||||||||
| 22 | ||||||||||
| 23 | Additional cash flow from the tablet line | $32,000 | ||||||||
| 24 | Growth rate of cash flows | 5% | ||||||||
| 25 | Discount rate | 15% | ||||||||
| 26 | ||||||||||
| 27 | Present value of the cash flows of tablet line | =Present value of growing perpetuity | ||||||||
| 28 | =$32,000 / (15%-5%) | |||||||||
| 29 | $320,000.00 | =D23/(D25-D24) | ||||||||
| 30 | ||||||||||
| 31 | Hence value of the growth opportunity of tablet line | $320,000.00 | ||||||||
| 32 | ||||||||||
| 33 | c) | |||||||||
| 34 | ||||||||||
| 35 | Total Value of the firm | =Value of the firm witout the tablet line + Value of the tablet line | ||||||||
| 36 | =$666,666.67 +$320,000 | |||||||||
| 37 | $986,666.67 | =D11+D31 | ||||||||
| 38 | Number of shares outstanding | 200,000 | ||||||||
| 39 | ||||||||||
| 40 | Price per share of the tablet line | =Value of the firm without tablet line / Total number of shares outstanding | ||||||||
| 41 | =$986,666.67 / 200,000 | |||||||||
| 42 | $4.93 | =D37/D38 | ||||||||
| 43 | ||||||||||
| 44 | Hence Price per share of the firm with tablet line | $4.93 | ||||||||
| 45 | ||||||||||
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