Question1. Wall Inc. forecasts that it will have the free cash flows (in term of millions) which are shown below. The weighted average cost of capital is 14% and the free cash flows are anticipated to continue growing at 12.5% after Year three. The firm has $55 million of debt and 50 million shares outstanding, what is firm's estimated market value per share?
Year 1 - FCF of -$20
Year 2 - FCF of $48
Year 3 - FCF of $54
Question2. Musgrave Corporation has a fixed operating cost of $46,000 and variable costs which are 30% of the current sales price of $2.15.
At a price of $2.15, Musgrave sells 40,000 units. Musgrave can raise sales by 10,000 units by cutting its unit price from $2.15 to $1.95 however variable cost per unit will not change. Must it cut its price?
Question3. The accounts of the Weston Inc. Point out the following changes in long term assets and capital for past year:
1) 50,000 shares of common stock were sold at $25 per share
2) $2 million in bonds matured and were retired
3) Dividends of $1million were paid
4) Net fixed assets declined by $200,000
5) Net income was calculated to be $ 2 million
6) Depreciation expense was $ 1.5 million
What was the decrease or increase in net working capital? (Hint: changes in the net fixed assets incorporate changes in the both gross fixed assets as well as accumulated depreciation)