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FCFE per share / Current Value

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Abbey Naylor, CFA, has been directed by Carroll to determine the value of Sundanci's stock using the free cash flow to equity model. Naylor believes that Sundanci's FCFE will grow at 27 percent for two years and 13 percent thereafter. Capital expeditures, depreciation, and working capital are all expected to increase proportionately with FCFE.

a) Calculate the amount of FCFE per share for the year 2000 using the data below.

INCOME STATEMENT: 1999 2000
Revenue $474 $598
Depreciation 20 23
Other Operating Costs 368 460
Income Before Taxes 86 115
Taxes 26 35
Net Income 60 80
Dividends 18 24
EPS $0.714 $0.952
Dividend Per Share $0.214 $0.286
Common Shares Outstanding 84mil 84mil

BALENCE SHEET:
Current Assets $201 $326
Net, PPE 474 489
Total Assets 675 815
Current Liabilities 57 141
Long-term Debt 0 0
Total Liabilities 57 141
Shareolders Equity 618 674
Total liab. & Equity 675 815
Capital Expenditures 34 38

b) Calculate the current value of a share of Sundanci stock based on the two-stage FCFE model. Show work.

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FCFE per share / Current Value
Abbey Naylor, CFA, has been directed by Carroll to determine the value of Sundanci's stock using the free cash flow to equity model. Naylor believes that Sundanci's FCFE will grow at 27 percent for two years and 13 percent thereafter. Capital expenditures, depreciation, and working capital are all expected to increase proportionately with FCFE.

a) Calculate the amount of FCFE per share for the year 2000 using the data below.

INCOME STATEMENT: 1999 2000
Revenue $474 $598
Depreciation 20 23
Other Operating Costs ...

$2.19
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Consumer Products Inc. (CPI) is a U.S. regional consumer products company located in Phoenix, Arizona. The company manufactures and distributes a small line of consumer products to retailers in major western cities including Los Angeles, San Francisco, Seattle, Portland, and Phoenix. The company has an excellent reputation as a good corporate citizen and producer of some of the highest quality products in the business.

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With only a U.S. regional presence and $200 million in revenue, you are clearly aware that the company's ability to compete with the industry giants (Procter & Gamble, Unilever, Colgate, and Gillette) is limited. You believe that the firm must expand to other regions in the U.S. and begin international expansion if it is going to grow and prosper over the next decade.

The Board has reservations about making such bold moves, arguing that the company has been a successful regional company for over 50 years and can remain a niche player in the consumer products business. You see things differently. You see that the market is changing and competitors are becoming more aggressive by making acquisitions or developing new products that are extremely competitive with CPI's brands. More importantly, you believe that the company will either be crushed by competition or forced into a merger to survive.

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Value the company using the free cash flow to equity (FCFE) model and the constant growth dividend discount model (DDM). You will use the link below for the company's financials.

Use the dividend compound annual growth rate (CAGR) for the last 5 years as the constant dividend growth rate and assume the required rate of return on stocks is 10 percent.

Compare these two valuations with the year-end stock price listed on CPI's balance sheet. Discuss why the values differ and which you believe to be the firm's true value.

Finally, comment on the outlook of the firm, discussing what you think will happen to the firm's valuation with the expansion.

**Please look at the attachments which go with the problem above**

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