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    Cash Flow and Corp Evaluation

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    Consider the following financial data for Rinaldi Ravioli for the most recent year (see attachment):

    Sales = $100M
    Labor and material expense = $50M
    Depreciation = $20M
    Interest expense = $5M
    Tax rate = 40%
    Capital expenditures = $22M
    Receivables increased by $6M
    Inventory increased by $1M
    Payables increased by $3M
    Short-term debt = $60M
    The cost of capital is 12%
    The company is in decline, and the expected growth rate in free cash flow is negative 3% per year forever
    The company has excess cash of $6M and a piece of land that it is not using with an estimated value of $16M

    (a)   Compute the free cash flow for the most recent year.
    (b) Estimate the value of the enterprise.
    (c) Estimate the value of the company's equity.

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    Solution Summary

    The solution computes the free cash flow for the most recent year, the value of the enterprise and the company's equity.