assume there are three ways in which terminal value can be estimated - liquidation value for...
assume there are three ways in which terminal value can be estimated - liquidation value for the assets, a multiple of earnings or revenues in the terminal year or by assuming that cashflows grow at a constant rate forever after your terminal year. How do you determine which approach to use to estimate terminal value?
Homework Answers
There can be three scenarios in which each of the approaches can be used :
- The project is assumed to be wound up at the end of its life, and the assets will be sold sold off and operations ceased. In this case, liquidation value of assets is the most appropriate approach to use.
- The project is assumed to be sold off at the end of the terminal period, but as a going concern. That is, the operations would continue but with a change of ownership, which takes place by a sale of the project to another party. In this case, multiple of earnings or revenues is the most appropriate method to use.
- The project is assumed to last forever, with a constant growth rate after the terminal year. In this case, assuming that cash flows grow at a constant rate forever after your terminal year is the most appropriate method to use.
Add Answer to:
assume there are three ways in which terminal value can be
estimated - liquidation value for...
You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from...
You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from assets for the next three years are $250m, $350m, and $500m, respectively. The cash flows are expected to grow at 3% thereafter forever. The estimated WACC is 9%. What is the value of the Smoothie company.?
Burklin, Inc., has earnings of $20 million and is projected to grow at a constant rate...
Burklin, Inc., has earnings of $20 million and is projected to grow at a constant rate of 8 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. The company plans to launch a new project two years from now that would be completely internally funded and require 20 percent of the earnings that year. The project would start generating revenues one year after the launch of the project and the...
Burklin, Inc., has earnings of $18.5 million and is projected to grow at a constant rate of 5 percent forever becaus...
Burklin, Inc., has earnings of $18.5 million and is projected to grow at a constant rate of 5 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. The company plans to launch a new project two years from now that would be completely internally funded and require 25 percent of the earnings that year. The project would start generating revenues one year after the launch of the project and the...
Corporate Finance
Growth Opportunities Burklin, Inc., has earnings of $18 million and is projected to grow at a constant rate of 5 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. The company plans to launch a new project two years from now that would be completely internally funded and require 30 percent of the earnings that year. The project would start generating revenues one year after the launch of the project...
Terminal Value In Class Problem Firm B is considering the acquisition of Firm Y. Firm B has estimated the cash flow...
Terminal Value In Class Problem Firm B is considering the acquisition of Firm Y. Firm B has estimated the cash flows, cost of capital, and growth rate for firm Y shown below. Using these estimates, estimate the current value of firm Y using the terminal value technique. Year 1 Year 2 Year 3 Year 4 $1,450 CFF $900 $1,115 $1,240 WACC = 11%, g = 2% (assumed constant following year 4).
You are using EDITBA multiple approach to estimate the terminal value for JetBlue Airways. Which of...
You are using EDITBA multiple approach to estimate the terminal value for JetBlue Airways. Which of the following statements are correct? Select all that apply. Select one or more: a. We can use airlines industry average as it will give a representative measure of the entire industry. b. We should not use industry average multiples as they suffer from outlier effects and lack of comparability. c. We can use mean EBITDA multiple for low-fare airlines, as these are more comparable...
Assume there are three companies that in the past year paid exactly the same annual dividend...
Assume there are three companies that in the past year paid
exactly the same annual dividend of $2.14 a share. In addition,
the future annual rate of growth in dividends for each of the three
companies has been estimated as follows (attached). Assume that as
the result of a strange set of circumstances, these 3 companies
all have the same required rate of return 11%
A. Use the appropriate DVM to value each of these companies.
(round each to the...
Assume there are three companies that in the past year paid exactly the same annual dividend...
Assume there are three companies that in the past year paid
exactly the same annual dividend of $1.52 a share. In addition,
the future annual rate of growth in dividends for each of the three
companies has been estimated as follows: (attached). Assume also
that as the result of a strange set of circumstances, these 3
companies all have the same req. rate of return =11%
).
A. Use the appropriate DVM to value each of these companies.
(round each...
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI...
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI Corp's cost of equity, use the following information: The CI Corp's beta is 1.2, expected return on the market is 8%, and the risk-free rate is 2%. Its pretax cost of debt is 4%, what is the company's WACC? The tax rate is 35%. Q4. (10 Points) You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from assets...
CH7 1. Laurel Enterprises expects earnings next year of $3.84 per share and has a 50%...
CH7 1. Laurel Enterprises expects earnings next year of $3.84 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 1 1%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year If its next dividend is due in one year, what do you estimate the firm's current stock price to be? 2, Laurel Enterprises expects earnings...
Burklin, Inc., has earnings of $20 million and is projected to grow at a constant rate of 8 percent forever because of the benefits gained from the learning curve. Currently, all earnings are paid out as dividends. The company plans to launch a new project two years from now that would be completely internally funded and require 20 percent of the earnings that year. The project would start generating revenues one year after the launch of the project and the...
Terminal Value In Class Problem Firm B is considering the acquisition of Firm Y. Firm B has estimated the cash flows, cost of capital, and growth rate for firm Y shown below. Using these estimates, estimate the current value of firm Y using the terminal value technique. Year 1 Year 2 Year 3 Year 4 $1,450 CFF $900 $1,115 $1,240 WACC = 11%, g = 2% (assumed constant following year 4).
Assume there are three companies that in the past year paid
exactly the same annual dividend of $2.14 a share. In addition,
the future annual rate of growth in dividends for each of the three
companies has been estimated as follows (attached). Assume that as
the result of a strange set of circumstances, these 3 companies
all have the same required rate of return 11%
A. Use the appropriate DVM to value each of these companies.
(round each to the...
Assume there are three companies that in the past year paid
exactly the same annual dividend of $1.52 a share. In addition,
the future annual rate of growth in dividends for each of the three
companies has been estimated as follows: (attached). Assume also
that as the result of a strange set of circumstances, these 3
companies all have the same req. rate of return =11%
).
A. Use the appropriate DVM to value each of these companies.
(round each...
Q3. (10 Points) The debt-to-equity ratio of the CI Corp. is 0.5. To calculate the CI Corp's cost of equity, use the following information: The CI Corp's beta is 1.2, expected return on the market is 8%, and the risk-free rate is 2%. Its pretax cost of debt is 4%, what is the company's WACC? The tax rate is 35%. Q4. (10 Points) You are trying to estimate the value of the Smoothie company. The expected after-tax cashflows from assets...
CH7 1. Laurel Enterprises expects earnings next year of $3.84 per share and has a 50% retention rate, which it plans to keep constant. Its equity cost of capital is 1 1%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 5.5% per year If its next dividend is due in one year, what do you estimate the firm's current stock price to be? 2, Laurel Enterprises expects earnings...
Most questions answered within 3 hours.
-
1 point) Given the significance level α=0.01 find the following:
(a) left-tailed z value z= (b)...
asked 59 seconds from now -
Calculate the expected value, the variance, and the standard
deviation of the given random variable X....
asked 49 seconds ago -
Assume that in a hydrogen atom, the electron circles the nucleus
in a circle of radius...
asked 4 minutes ago -
Describe two obstacles that makes fixing atmospheric nitrogen
difficult.
asked 9 minutes ago -
T
F 53) Most differences
between human groups are the result of biology rather than
culture....
asked 14 minutes ago -
A 5.20 mW helium neon laser emits a visible laser beam with a
wavelength of 633...
asked 17 minutes ago -
Assignment:
Your
organization has made a strategic decision
to
outsourcework
currently performed in house. You have...
asked 16 minutes ago -
A hospital performs 100 surgeries per week. The probability that
complications after surgery occur is 10%....
asked 16 minutes ago -
In preparing its cash flow statement for the year ended December
31, 2018, Green Co. gathered...
asked 18 minutes ago -
Donna is 18 years old and full time accounting student.She is
saving for an overseas holiday...
asked 19 minutes ago -
Service-oriented architectures (SOA) provide
object-oriented architectures for web platforms that represent a
collection of services. SOA...
asked 19 minutes ago -
Le Terroir Winery is considering an expansion project to produce
fine wines. The trial expansion will...
asked 28 minutes ago