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The Discounted Cash Flows Model

Study Question

What information should be included in a financial forecast accompanying a strategic plan and why?

Raising fund for company

A company has raised $80 million from selling stocks. It wants to take part in a venture that requires $40 million this year, its annual after tax cash flow over the next seven years will be only $325,000. If it does invest in this venture it expects its after-tax cash flow to be minus $10 million annually for the same period.

Certified Financial Planner practice exam questions

These are sample Certified Financial Planner exam test questions from my textbook: If a client's primary goal in making lifetime gifts to his children is to lower his estate taxes he should make gifts of property that A. Are expected to depreciate significantly in the future B. Are expected to appreciate significantly in t

Pro forma statement

When speaking of the present value of future cash flows, is it referring to values found on a pro forma statement?

Project evaluation depreciation

ABC company purchased a machine 5 years ago at cost of $100000. The machine had an expected life of 10 years at the time of purchase, and an expected salvage value of $10,000 at the end of the 10 years.Taxation depreciation allowable is 10 percent per year over ten years. A new machine can be purchased for $150,000 including

At what price should the stock of ABC company be selling for today?

One year ago ABC Company paid a $4.00 dividend, and, during the current year, it has experienced a 10 percent growth rate. Due to a new, advance production technique, ABC expects to achieve a dramatic increase in its short-run growth rate -- 25 percent annually for the next 3 years. After this time, growth is expected to retur

Question about Market Value and WACC

Please help with the following problem. The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero-growth company. AJC's current cost of equity is 8.8 perce

Cost of capital, business structure

1. Which of the following statements is most correct? a.Suppose a firm is losing money and thus, is not paying taxes, and that this situation is expected to persist for a few years whether or not the firm uses debt financing. Then the firm's after-tax cost of debt will equal its before-tax cost of debt. b.The component cost

4 Questions

1. What is the yield-to-maturity of the following bond (payments are made semiannually: Par Value (value at maturity): 10000 Annual Coupon: 7.8% Maturity: 10 years Current Market Value: $8,750 2. What should be the current market value (present value) of a preferre

This is a Financial Management Problem

1) You have been hired as a financial consultant to Jane Corporation, a large, publicly traded firm. The company is looking at setting up a manufacturing plant overseas. The project will be for five years. The company bought some land three years ago for $4.2 million in anticipation of using it as a possible plant site, but the

Cost of Common Equity

Why are several formulas often used to estimate the cost of common equity instead of the "right" formula?

Cash flow

The value of cash flow will decline if ____________________: i.) the discount rate rises ii.) the cash flow occurs closer in time iii.) compounding frequency rises iv.) its level of risk rises a) i. and ii. Only b) i. and iii. Only c) ii and iii only d) iii and iv only e) I, iii and iv only Suppose a

Problem Set

--- 9-3 The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices." Is this statement true or false? Explai

Discounted cash flow problem

A 100-acre tract of land within an urban municipality is scheduled to be subdivided into 320 home sites, averaging 80 feet road frontage. There is active demand for homes in the $120,000 to $140,000 price bracket. The average price of dwellings planned for the subject tract is $125,000. The ratio of site to property value in

Finance: Ebay's IPO price, LaserAce dividend growth, Huskie Motor current price

Ebay inc. went public in September of 1998. The following information on shares outstanding was listed in the final prospectus filed with SEC. In the IPO, Ebay issued 3,500,000 new shares. The intial price to the public was $18.00 per share. The final first-day closing price was $44.88. 1. Two common statistics in IPOs are un

Dividend valuation model

How can the free cash flow approach to valuing a company be used to solve the valuation challenge present by firms that do not pay dividends? Compare and contrast this model to the dividend valuation model?

Can you please explain how to work these problems?

1. The Club Auto Parts Company has just recently been organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, Club will grow at an annual rate of 5% in the third year and, beginning with the fourth year, should attain a 10% growth rate that it will

Financial management problem

I would like to get some help with this problem . I have 4 more similar to it and I would like to get some guidance as to what I'm supposed to be doing here. Please provide all calculations and formulas used as well as explanations where possible. Information needed to complete this problem is provided in the attachments. Howeve

Valuation

Calculating a company's firm price via the free cash flow model and via the residual income model. Please show work in Excel spreadsheet. Thank you! Assume Co. began operations on January 1, 2001 with $100 cash and $100 equity. On January 1, it purchased a machine for $60 cash and inventory for $40 cash. During 2001 it sold

Responsibility centers - financial control

Please help me to understand how you came to these calculations. For Question 1, how did you calculate the initial investment? How did you calculate the net cashflows - cashflows in and cashflows out? How you do that get the PV of the net cash inflows? After that do I take that calculation and subtract the initial investme

Financial Forecasting, Company Valuation (DCF Method)

I forecasted the cash flows for DELL for the next 5 yrs (2006-2010) with the help of an online TA. I found the discounted cash flows, but what do I look for when valuing the firm? First, is the value of the firm on my Excel correct, how about the DCF? Is the price per share correct? It seems too low considering the current s

Spot and Forward Rates embedded in treasury bond prices: calculate cash & profit

A) What spot and forward rates are embedded in the following treasury bonds? The price of one-year (zero coupon) treasury bills is 93.46 percent. Assume for simplicity that bonds make one annual payment. Hint: Can you devise a mixture of long and short positions in these bonds that gives a cash payoff only in year 2? In year 3?

BYP2-1 Managerial Accounting/ Job Costing

BYP2.1 Du Page Products Company uses a job order cost system. For a number of months there has been an ongoing rift between the sales department and the production department concerning a special.order product, TC.1. TC.1 is a seasonal product that is manufactured in batches of 1,000 units. TC.1 is sold at cost plus a markup

Case: "Determining the Cost of Capital"

Given the attached case study and balance sheet information, please answer the below exam review questions: Oceantech Corporation, a Chesapeake, VA based company, was incorporated in 1991. The corporation, which was privately owned at that time, was founded by Ralph Torrence, III after his retirement from NorshipCo. Oceantech

Financial managment

Please answer the following questions and give detailed answers. 1- The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued five years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest

Cash Flow Problems. a. What are the problems with an analysis in which the discount rate is in nominal terms but the cash flows are measured in current dollar terms, unadjusted for inflation? b. If cash flows are to be adjusted for inflation, is it appropriate to assume that inflation is neutral, i.e., that inflation has the same impact on all elements of the cash flow stream?

In the analysis John drew your attention to the fact that whereas you were using the market-determined nominal cost of capital as the discount rate, the sales price and operating cost per unit were assumed to remain constant throughout the project's life. This raised the following questions a. What are the problems with an

Decision Variables; Objective Function; Cash-Flow Constraints

At the start of the year, a company wants to invest excess cash in one-month, three-month and six-month Certificates of Deposit (CD's). (Purchase price and yields for the different CD's appear in the table below - *see attachment). The company is somewhat conservative, however, and wants to make sure that it has a safety margin