The top three members of the management team of an electronic firm purchased the company with...
The top three members of the management team of an electronic firm purchased the company with their own personal fund and $100 million borrowing. The interest on the loan was 11% and the loan is to be paid off annually by $25 million so that by the end of year 4 the loan will be fully paid off. The unlevered cost of equity for the firm is estimated at 12% and the tax rate is 35%. The free cash flows are estimated for the next four years as follows: $50 million in year 1, $55 million in year 2, $58 million in year 3, and $60 million in year 4. The cash flow is expected to grow at 3% per year after the fourth year.
Estimate the value of the firm as of year 0 using the APV valuation method.
Homework Answers
| [$ in millions] | 0 | 1 | 2 | 3 | 4 | 5-------> |
| FCF | 50.00 | 55.00 | 58.00 | 60.00 | ||
| PVIF at 12% | 0.89286 | 0.79719 | 0.71178 | 0.63552 | ||
| PV at 12% | 44.64 | 43.85 | 41.28 | 38.13 | ||
| Sum of PV of FCF - t1 to t4 | 167.90 | |||||
| Continuing value of FCF = 60*1.03/(0.12-0.03) = | 686.67 | |||||
| PV of continuing value = 686.67*0.63552 = | 436.39 | |||||
| Unlevered value of FCF | 604.30 | |||||
| Interest expense: | ||||||
| Beginning loan balance | 100.00 | 75.00 | 50.00 | 25.00 | ||
| Tax shield on interest at 35% | 35.00 | 26.25 | 17.5 | 8.75 | ||
| PVIF at 11% | 0.90090 | 0.81162 | 0.73119 | 0.65873 | ||
| PV of interest tax shield | 31.53 | 21.31 | 12.80 | 5.76 | ||
| Sum of PV of ITS - t1 to t4 | 71.40 | |||||
| APV = 604.30+71.40 | 675.69 |
Add Answer to:
The top three members of the management team of an electronic
firm purchased the company with...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old and unmarried. He has incurred a number of expenses during the 2019 year of assessment. He would like to know if they are deductible in the determination of his taxable income. These expenses are as follows: • A local newspaper published the names of what was believed to be a list of members of a club that was under examination by the police as...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old and unmarried. He has incurred a number of expenses during the 2019 year of assessment. He would like to know if they are deductible in the determination of his taxable income. These expenses are as follows: • A local newspaper published the names of what was believed to be a list of members of a club that was under examination by the police as...
In March 2018, the management team of Londonderry Air (LA) met to discuss a proposal to purchase five shorthaul aircraft at a total cost of $25 million.
In March 2018, the management team of Londonderry Air (LA) met to discuss a proposal to purchase five shorthaul aircraft at a total cost of \(\$ 25\) million. There was general enthusiasm for the investment, and the new aircraft were expected to generate an annual cash flow of \(\$ 4\) million for 20 years.The focus of the meeting was on how to finance the purchase. LA had \(\$ 20\) million in cash and marketable securities (see table), but Ed Johnson,...
Information: Terry has three main classifications of employees: management, designers, and production workers. In order to...
Information:
Terry has three main classifications of employees: management,
designers, and production workers. In
order to retain their qualified design (or research) staff,
Terry has offered them a small defined benefit
pension if they remain with the company until their retirement.
Terry’s management team has been
provided with a 401(k) (despite numerous complaints from the
management team that they also
deserve a pension). Since the production team traditionally
turns over very quickly with little adverse
effect on the company, Terry...
ELECTRONIC TIMING, INC. Electronic Timing, Inc. (ETI), is a small company founded 15 years ago by...
ELECTRONIC TIMING, INC. Electronic Timing, Inc. (ETI), is a small company founded 15 years ago by electronics engineers Tom Miller and Jessica Kerr. ETI manufactures integrated circuits to capitalize on the complex mixed-signal design technology and has recently entered the market for frequency timing generators, or silicon timing devices, which provide the timing signals or "clocks” necessary to synchronize electronic systems. Its clock products originally were used in PC video graphics applications, but the market has subsequently expanded to include...
Electronic Timing Inc (ETI) is a small company founded 15 years ago by electronic engineers Tom Miller and Jessica Kerr
Electronic Timing Inc (ETI) is a small company founded 15 years ago by electronic engineers Tom Miller and Jessica Kerr. EIT manufactures integrated circuits to capitalize on the complex nixed-signal design technology and has recently entered the market for frequency timing generators, or silicon timing devices, which provide the timing signals or “clocks” necessary to synchronize electronic systems. Its clock products originally were used in PC video graphics applications, but the market subsequently expanded to include motherboards, PC peripheral devices,...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Please show cash flows, NPV, IRR, and payback period Sneaker 2013 The business case team had...
Please show cash flows, NPV, IRR, and payback period
Sneaker 2013 The business case team had compiled the following baseline information surrounding the Sneaker 2013 project: 1. The life of the Sneaker 2013 project was expected to be six years. Assume the analysis took place at the end of 2012. 2. The suggested retail price of the shoe was $190. Gross margins for high-end athletic footwear averaged about 40% at the retail level, meaning each pair sold would net New...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old and unmarried. He has incurred a number of expenses during the 2019 year of assessment. He would like to know if they are deductible in the determination of his taxable income. These expenses are as follows: • A local newspaper published the names of what was believed to be a list of members of a club that was under examination by the police as...
QUESTION THREE Mark Abrahams is a partner at a law firm. He is 40 years old and unmarried. He has incurred a number of expenses during the 2019 year of assessment. He would like to know if they are deductible in the determination of his taxable income. These expenses are as follows: • A local newspaper published the names of what was believed to be a list of members of a club that was under examination by the police as...
Information:
Terry has three main classifications of employees: management,
designers, and production workers. In
order to retain their qualified design (or research) staff,
Terry has offered them a small defined benefit
pension if they remain with the company until their retirement.
Terry’s management team has been
provided with a 401(k) (despite numerous complaints from the
management team that they also
deserve a pension). Since the production team traditionally
turns over very quickly with little adverse
effect on the company, Terry...
ELECTRONIC TIMING, INC. Electronic Timing, Inc. (ETI), is a small company founded 15 years ago by electronics engineers Tom Miller and Jessica Kerr. ETI manufactures integrated circuits to capitalize on the complex mixed-signal design technology and has recently entered the market for frequency timing generators, or silicon timing devices, which provide the timing signals or "clocks” necessary to synchronize electronic systems. Its clock products originally were used in PC video graphics applications, but the market has subsequently expanded to include...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Please show cash flows, NPV, IRR, and payback period
Sneaker 2013 The business case team had compiled the following baseline information surrounding the Sneaker 2013 project: 1. The life of the Sneaker 2013 project was expected to be six years. Assume the analysis took place at the end of 2012. 2. The suggested retail price of the shoe was $190. Gross margins for high-end athletic footwear averaged about 40% at the retail level, meaning each pair sold would net New...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Most questions answered within 3 hours.
-
Assume that the population of Mexico is 128
million and that the population increases 1.01
percentannually....
asked 35 minutes ago -
Can someone please help me add appropriate descriptive
comments to each line of code in the...
asked 41 minutes ago -
Romeo wishes to throw a bouquet of flowers to Juliet, who is on
a second-story balcony,...
asked 1 hour ago -
Why is QE a controversial monetary policy tool.
A. It may lead to excessive inflation.B. By...
asked 1 hour ago -
Principles of Programming midterm study guide help!
1.)
______ Which of the following would reference the...
asked 1 hour ago -
A finite potential well has depth U0 = 2.78 eV . What is the
penetration distance...
asked 2 hours ago -
1. The bus bars of a power station are in two sections A and B
separated...
asked 2 hours ago -
Fiscal policy is the deliberate manipulation of taxes and
government spending to alter GDP, employment, inflation...
asked 3 hours ago -
evaluating an expression using only one digit and + and - as
operators ....3+5-1+7-5+8
-----------------------
stack...
asked 3 hours ago -
Two concentric current loops lie in the same plane. The smaller
loop has a radius of...
asked 3 hours ago -
1)Which of the following is an
important difference between qualified and nonqualified retirement
plans?
a. Qualified...
asked 3 hours ago -
What's the streaming business's problem on the
horizon?
asked 4 hours ago