Assignment 13
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assignment_13.docxProblem 7-9 Constant Growth Valuation
Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year (D1 = $1.50); its beta is 0.70; the risk-free rate is 5.6%; and the market risk premium is 4%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $31 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest cent.
$ ________
Problem 7-17 Value of Operations
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is 18%.
a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.
$ _________________
b. Calculate the value of Kendra's operations. Round your answer to the nearest cent. Round intermediate calculations to two decimal places.
$ _________________
Problem 7-18 Free Cash Flow Valuation
Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate. Dozier's weighted average cost of capital is WACC = 17%.
|
|
Year |
||
|
|
1 |
2 |
3 |
|
Free cash flow ($ millions) |
-$20 |
$30 |
$40 |
a. What is Dozier's terminal, or horizon, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. $ _________________ million
b. What is the current value of operations for Dozier? Round your answer to two decimal places. Round intermediate calculations to two decimal places. $ _________________ million
c. Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Round your answer to the nearest cent. Round intermediate calculations to two decimal places. $ _________________
Problem 7
-
9
Constant Growth Valuation
Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year
(
D
1
= $1.50); its beta is 0.70; the risk
-
free rate is 5.6%; and the market risk premium is 4%. The
dividend is expected to grow at some constant rate g, and the stock currently sells for $31 a share.
Assuming the market is in equilibrium, what does the market
believe will be the stock's price at the
end of 3 years (i.e., what is
)? Do not round intermediate steps. Round your answer to the nearest
cent.
$
________
Problem 7
-
17
Value of Operations
Kendra Enterprises has never paid a dividend. Free cash fl
ow is projected to be $80,000 and $100,000
for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of
8%. The company's weighted average cost of capital is 18%.
a.
What is the t
erminal, or horizon, value of operations? (
Hint
: Find the value of all free cash
flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.
$
_________________
b.
Calculate the value of Kendra's operations. Round your an
swer to the nearest cent. Round
intermediate calculations to two decimal places.
$
_________________
Problem 7
-
18
Free Cash Flow Valuation
Dozier Corporation is a fast
-
growing supplier of office products. Analysts project the following free
cash f
lows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate.
Dozier's weighted average cost of capital is WACC = 17%.
Year
1
2
3
Free cash flow ($ millions)
-
$20
$30
$40
Problem 7-9
Constant Growth Valuation
Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year
(D
1
= $1.50); its beta is 0.70; the risk-free rate is 5.6%; and the market risk premium is 4%. The
dividend is expected to grow at some constant rate g, and the stock currently sells for $31 a share.
Assuming the market is in equilibrium, what does the market believe will be the stock's price at the
end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest
cent.
$ ________
Problem 7-17
Value of Operations
Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000
for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of
8%. The company's weighted average cost of capital is 18%.
a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash
flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.
$ _________________
b. Calculate the value of Kendra's operations. Round your answer to the nearest cent. Round
intermediate calculations to two decimal places.
$ _________________
Problem 7-18
Free Cash Flow Valuation
Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free
cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate.
Dozier's weighted average cost of capital is WACC = 17%.
Year
1 2 3
Free cash flow ($ millions) -$20 $30 $40
