Question

Slalom Corporation retains and reinvests all its earnings. So, Slalom does not pay any dividends, and it has no plans to pay dividends any time soon. A major pension fund is interested in purchasing Slalom’s stock. The pension fund manager has estimated Slalom’s free cash flows for the next 3 years as follows: $5,000,000, $9,000,000, and $12,000,000. After Year 3, free cash flow is projected to grow at a constant 4%. Slalom’s WACC is 10%, the market value of its debt and preferred stock totals $27,272,727, Slalom has $10,000,000 in non-operating assets, and it has 5,000,000 shares of common stock outstanding. Based on this information answer the following questions:

What is the value of the company’s operations? What is the value of the company? What is the market value of the company’s equity? What is the market value of the company’s equity?

Answer 1

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3RD QUESTION IS WRITTEN 2 TIMES, IF IT IS PRICE PER SHARE, THEN I HAVE GIVEN THAT ANSWER AS (d) 32

- 2x m Find & Select DI DU . NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri - 11 -A A = = = Wrap Text General Ea Copy Fill 2 Paste St BI U DA Merge Center $ % :.00 Conditional Format Cell Insert Delete Format Sort & Format Painter Formatting as Table Styles Clear Filter Clipboard Font Alignment Number Styles Cells Editing DM80 fax DJ DK DL DM DN DO D P D Q DR DS 80 81 82 83 YEAR 3 FREE CASH FLOW 5000000 9000000 12000000 TERMINAL VALUE 208000000 (12000000*(1+0.04)/(0.13-0.04)) PRESENT VALUE OF ALL FCF OF 3 YEARS YEAR FREE CASH FLOW 5000000 9000000 12000000 PV FACTOR @10% 0.9091 0.8264 0.7513 PV OF ALL FCF 4545454.55 7438016.53 9 015777.61 20999248.69 84 92 94 95 96 97 98 99 (a) VALUE OF OPERATIONS = 208000000 (12000000*(1+0.04)/(0.13-0.04)) FIRM'S TOTAL VALUE TODAY = PRESENT VALUE OF ALL FCF + PV OF HORIZON VALUE FIRM'S TOTAL VALUE TODAY = 20999248.69 + (208000000 x PVIF@10%, 3 YEARS) (b) VALUE OF COMPANY = 20999248.69 + (208000000 X 0.7513)= 177272727 K N FCF ARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST OCF CASH FLOW STATW ferences: E146 PREF AND DIV POLICY BO 120% I - Rea DOR . * ENG 31-10-2019

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins Data Review - 2x A = = = General BEHARREZA File Home Insert Page Layout Formulas % Cut Calibri 11 A E Copy Paste BI U D- DA Format Painter Clipboard Font DM117 - for DJ DK DL DM V Wrap Text SF Merge Merge & Center - Center Alignment e $ 4:0 .00 :.: Insert Delete Format % % , Number Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Cells DN DO D P D Q DR DS DI DU S 98 99 100 177272727 10000000 101 102 103 104 ADD LESS LESS FIRM'S TOTAL VALUE NON OPERATING ASSETS MARKET VALUE OF DEBT AND PREFERRED STOCK (c) MARKET VALUE OF EQUITY NO OF SHARES (d) PRICE PER SHARE 105 27272727 160000000 5000000 32.00 106 107 108 109 110 111 112 113 114 115 116 117 O FCF ARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST I CF CASH FLOW STATW ferences: EV46 PREF AND DIV POLICY BOJ 120% Rea DOR . * ENG 31-10-2019