Question

2. A firm currently has $10 million in debt, $40 million in cash, and 10 million shares outstanding. If the present value of the firm's free cash flows is $120 million, what should be its share price?

4. If the tax rate is 40%, what are the net proceeds from selling an asset for $90,000? Assume the asset originally had a book value of $20,000.

7. ReMATE Incorporate expects free cash flow earnings of $6 million next year. Since the firm is mature, it only expects growth of 3% per year. The firm's copy of capital is estimated at 10%. If the firm has $3 million in excess cash and $10 million in debt, what is the enterprise value of the firm? Assume the firm has 10 million shares outstanding.

9.

Yr	FCF
1	8M
2	10M

A firm expects the free cash flows listed above. After year 2, the firm expects free cash flows will continue to grow indefinitely at the industry average of 5%. The firm estimates its cost of capital to be 8%. If the firm has debt of $40 million and cash of $20 million, what is its enterprise value? Assume 10 million shares outstanding.

Is there a way to find #9 on a financial calculator?

Answer 1

Question 2) . A firm currently has $10 million in debt, $40 million in cash, and 10 million shares outstanding. If the present value of the firm's free cash flows is $120 million, what should be its share price?

Answer: Equity Value = Enterprise Value - Debt + Cash = $ 120 -$ 10 + $ 40 = $ 150 million;

Share Price = Equity Value / No.of Shares outstanding = $ 150 million / 10 million = $ 15 per share

Share Price is $ 15 per share

Question 4) . If the tax rate is 40%, what are the net proceeds from selling an asset for $90,000? Assume the asset originally had a book value of $20,000.

Answer: Capital Gain = Sale Value - Book Value =  $ 90000 - $ 20000 = $ 70000;

Tax @ 40% on Capital Gain = $ 70000 * 40% = $ 28000

Net Proceeds = Sale Value - Tax on Capital Gains = $ 90000 - $ 28000 = $ 62000

Net Proceeds from selling the asset = $ 62000

Question 7) . ReMATE Incorporate expects free cash flow earnings of $6 million next year. Since the firm is mature, it only expects growth of 3% per year. The firm's copy of capital is estimated at 10%. If the firm has $3 million in excess cash and $10 million in debt, what is the enterprise value of the firm? Assume the firm has 10 million shares outstanding.

Answer: Enterprise Value = FCF / (Cost of Capital% - Growth%) =  $ 6000000 / (10%-3%) = $ 85714285.71;

Equity Value = Enterprise Value - Debt + Cash = $ 85714285.71 - $ 10000000 + $ 3000000 = $ 78714285.71;

Share Price = Equity Value / No.of Shares outstanding = $ 78714285.71 / 10 million = $ 7.87 per share

Enterprise Value is $ 85714285.71 and Share Price is $ 7.87 per share.

Question 9) .A firm expects the free cash flows listed above. After year 2, the firm expects free cash flows will continue to grow indefinitely at the industry average of 5%. The firm estimates its cost of capital to be 8%. If the firm has debt of $40 million and cash of $20 million, what is its enterprise value? Assume 10 million shares outstanding.

Answer: Enterprise Value is $ 316.05 Million and the Share Price is $ 29.60 per share

(in $ Mn) Year 0 Year 2 Year 1 8.00 10.00 FCFS Growth% Terminal 10.50 5.0% 10.50 1.0000 Free Cash Flows Discounting Factor Discounted Cash Flow Cumulative Discounted Cash Flow 8.00 0.9259 7.41 7.41 10.00 0.8573 8.57 15.98 CALCULATION OF ENTERPRISE VALUE % 5% Particulars PV of Year 1 to Year 2 Free Cash Fows (a) WACC Terminal Growth Terminal Value Present Value of Terminal value (b) ENTERPRISE VALUE (a) + (b) 15.98 8.00% 5.00% 350.00 300.07 316.05 95% 100% Less: Debt Add: Cash 40.00 20.00 Net Equity Value No.of Shares Outstanding (Qty in Million) Value Per Share (in $) 296.05 10.0 29.60