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The Discounted Cash Flows Model

TF: future cash flows, forecasts, market structure, discounting methods, WACC

Answer true or false to each question with one or two sentences of explanation for each. 1. The greater the uncertainty of the future, the greater the need for alternative scenarios in projecting future cash flows. 2. The reliability of continuing value estimates is greater than of explicit forecast estimates. 3. Compet

Computer Concepts Merger analysis

Please answer questions #2 through #7 and 11-12 at the end of the case. Please use the attached excel spreadsheet to support the analysis. Please show all of your supporting works in excel.


1.Consider the following returns and yields: U.S. T-bill = 8%, 5-year U.S. T-note = 7%, IBM common stock = 15%, IBM AAA Corporate Bond = 12% and 10-year U.S. T-bond = 6%. Based on this information, the shape of the yield curve is 1. normal. 2. downward sloping. 3. upward sloping. 4. flat. 2.If a bond pays

Forecasting, Interest Rate, Bonds, Market Securities

2. Government economists have forecasted one-year T-bill rates for the following five years, as follows: Year 1-year rate (%) 1 4.25 2 5.15 3 5.50 4 6.25 5 7.10 You have a liquidity premium of 0.25% for the next two years and 0.50% thereafter. Would you be willing to purchase a four year T-bond at a 5.75% inter

Values and statement of cash flows

8. Present value of an investment in equipment. (Tables needed.) Find the present value of an investment in equipment if it is expected to provide annual savings of $10,000 for 10 years and to have a resale value of $25,000 at the end of that period. Assume an interest rate of 9% and that savings are realized at year end.

CAPM, Dividend Growth or APT: Rate of Return Estimate

Which of the three models (dividend growth, CAPM, or APT) is the best one for estimating the required rate of return (or discount rate) of Safeway? In your paper include discussion of the following issues: 1. Ease of use of these three models 2. Accuracy of each of these three models 3. How realistic the assumptions of e

Describe a method used by analysts & investors to value a stock

There are many methods that are used by analysts and investors to value stock. A) Choose one of the methods and briefly describe this method. B) Give your opinion of why that method is useful in evaluating the stock of your choice (Example: use P/E ratio to evaluate Starbucks stock). Only one example is required.

Gordon model the share price

Super Growth Corp. has decided to increase its dividend to $5 per share beginning next year. The firm's growth rate is expected to be 12.5% for the foreseeable future. Investors require a rate of return on the firm's stock of 18%. Utilize the Gordon Model to calculate the expected price of the firm's stock. a. $64 b. $75 c

Bond Concepts

You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?

Risk & Return, Valuation and Ratio Analysis

Select one current event. Then, select three separate concepts / tools to analyze the current events in such a way that each concept or analysis will allow a financial decision maker to make an informed decision. Concepts can range from risk and return, capital structure considerations, ratio analysis, financial statement, val

Laser Industries : Callable bonds

Two years ago, Laser Industries issued callable eighteen-year, 9% coupon bonds at par value of $1,000 per bond with annual coupon payments. The bonds have just completed their second coupon payment. The bonds can be called at 104 five years from the date of issue or anytime thereafter on a coupon payment date. It has a current p

Calculations with the Cash Flow Model

Pick a company that pays dividends, then calculate the expected growth rate of your company using the CAPM. Once this task is complete, calculate the expected growth rate using the Constant Growth (or Gordon Growth) Model. You may need additional information to complete this exercise. You can find a stock's beta and grow

Classification of Derivatives for Accounting

Classification of Derivatives for Accounting I. Speculative II. Fair value hedge III. Cash flow hedge IV. Foreign currency fair value hedge V. Foreign currency cash flow hedge VI. Foreign currency hedge of net investment in foreign operation VII Not a derivative Based on the above, what category

Discounted cash flow method of valuation

1. What are some problems associated with using the discounted cash flow method of valuation? 2. Beta measures risk. What are some other types of risk faced by investors?

Enterprise Value and Equity

If BEA Enterprise in ready to launch a new product. Depending upon the success of this product, BEA will have a value of either $100 million, $150 million, or $191 million, with each outcome being equally likely. The cash flows are unrelated to the state of the economy (i.e. risk from the project is diversifiable) so that the

Valuation Using Free Cash Flow

The following free cash flows (in $ Million) are projected for the next five years. The free cash flows are expected to grow at a stable rate of 7% for every year after year 5. The opportunity cost of capital is 10%. Year 1/Free Cash Flow is 5 Year 2/Free Cash Flow is 12 Year 3/Free Cash Flow is 24 Year 4/Free Cash Flow i

I need assistance with these questions

1) other things held constant, which of the following alternatives would increase a company's cash flow for the current year? A) increase the number of years over which fixed assets are depreciated for tax purposes. B) pay down the accounts payable C) reduce the days sales outstanding without affecting sales or operatin

Choice of depreciation method

Phyllis believes that the firm should use straight-line depreciation for a capital project because it results in higher net income during the early years of the project's life. Joanna believes that the firm should use the modified accelerated cost recovery system depreciation because it reduces the tax liability during the early

Please see the problems below.

1. Having $200 in one year is equivalent to having what amount today? $218.08 $408.00 $192.31 $208.00 $800.00 2. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or Why not? 3.What is the no-arbitrage price of

Cash flows and project comparisons

You work for the 3T company, which expects to earn at least 18% on its investments. You have to choose between two similar projects. Below is the cash information for each project. Your analysts predict that the inflation rate will be a stable 3% over the next seven years. Which of the two projects would you fund if the decision

Calculating Payback Rates and ROI

Existing machine: Costs: 82,500, fully depreciated except for 7,500 salvage value. Operating costs: Maintenance: 67,500 Costs from alternatives (after five years, both machines have for tax purpose a zero salvage value): Machine 1 Purchase: 160,000 Operating costs: 45,000/ year Maintenance: 27,000 for the first th

Finance Test Review

True/False 1. The money market is usually thought of as dealing with long-term debt instruments issued by firms with excellent credit ratings. 2. For a firm to have its securities listed on an exchange, it must meet certain requirements. These usually include measures of profitability, size, market value, and

Gordon Model

You use constant growth dividend valuation model (i.e. Gordon model) to find the current market price of a stock. The required rate of return for this stock increases from 15 to 17 percent combined with an increase in the growth rate from 7 to 9 percent. Given these changes, show whether the price of the stock will rise or fall

Two additional mutually exclusive projects

Caledonia is considering two additional mutually exclusive projects. The cash flows associ­ated with these projects are as follows: ======================================================== YEAR PROJECT A PROJECT B -------------------------------------------------------------------------
0 -$

Forward Rate: Net Income

A US exporter has a Thai baht account receivable resulting from an export sale on April 1 to a customer in Thailand. The exporter signed a forward contract on April 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was $0.022 on that date, and the forward rate was $0

Cost of equity

How would you determine the cost of equity. There is know interest rate like you have with a bond, so how do you know what rate to use? 150 words

Calculating Firm Value Enterprise Valuations

APV Valuation Assumptions Unlevered cost of equity: 12% Borrowing Rate: 8% Tax Rate: 30% Current Debt Outstanding: $200.00 Years 1 2 3 4 & Beyond Firm Free Cash Flows $100.00 $120.00 $180.00 $200.00 Interest-bearing Debt 200.00 150.00 100.00 50.00 Interest Expense 16.00 12.00 8.00 4.00 Interest tax savings 4.80 3