Problem 1: Eagle Products' EMT is $300, its tax rate is 35%, depreciation is $20, capital expendi¬tures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?
Problem 2: FinCorp's free cash flow to the firm is reported as $205 million. The firm's interest expense is $22 million. Assume the tax rate is 35% and the net debt of the firm increases by $3 million. What is the market value of equity if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?
Problem 3: Sister Corp expects to earn $6 per share next year. The firm's ROE is 15% and its plowback ration 60% If the firm's market capitalization rate is 10%, what is the present value of its growth opportunities?
Problem 4: A common stocks pays an annual dividend per share of $2.10. The risk-free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $2.10, what is the value of the stock?
Problem 5:
A. MF Corp. has an ROE of 16% and a plowback ration of 15%. If the coming year's earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%.
B. What price do you expect MF shares to sell for in three years?
Problem 6: Helen Morgan, CFA, has been asked to use the DDm to determine the value of Sundanci, Inc. Morgan anticipates that Sundanci's earnings and dividends will grow at 32% for two years and 13% thereafter.
Calculate the current value of a share of Sundanci stock by using a two-stage dividend discount model and the data from Table.
|
Income Statement
|
2009
|
2010
|
|
Revenue
|
$474
|
$598
|
|
Depreciation
|
20
|
23
|
|
Other operating costs
|
368
|
460
|
|
Taxes
|
86
|
115
|
|
Net incomes
|
26
|
35
|
|
Dividends
|
60
|
80
|
|
Earnings per share
|
18
|
24
|
|
Dividends per share
|
$0.714
|
$0.952
|
|
Common Shares outstanding (Millions)
|
$0.214
|
$0.286
|
|
|
84.0
|
84.0
|
|
Balance Sheet
|
2009
|
2010
|
|
Current Assets
|
$201
|
$326
|
|
Net property, plant, and equipment
|
474
|
489
|
|
Total assets
|
675
|
815
|
|
Current liabilities
|
57
|
141
|
|
Long term debt
|
0
|
0
|
|
Total liabilities
|
57
|
141
|
|
Shareholder's equity
|
618
|
674
|
|
Total liabilities and equities
|
675
|
815
|
|
Capital expenditure
|
34
|
38
|
|
Required rate of return on equity
|
14%
|
|
Growth rate of industry
|
13%
|
|
Industry P/E ratio
|
26
|