Q1:Determine the correct discount rate to value the following scenario, assuming
ID: 2620783 • Letter: Q
Question
Q1:Determine the correct discount rate to value the following scenario, assuming there is no end to the timeline and the following data:
Cost of equity = 17.64%
Cost of debt = 7.38%
Debt = $577MM
Equity = $1249MM
Tax rate = 40%
Long-term growth expectations = 3.1%
Future dividends are forecast as follows:
Year 0: n/a
Year 1: 128
Year 2: 148
Year 3: 162
Year 4: 176
Year 5: 183
Enter the correct discount rate below
Answer:
(17.64)
Q2. Value the following scenario, assuming there is no end to the timeline and the following data:
Cost of equity = 15.23%
Cost of debt = 6.71%
Debt = $578MM
Equity = $1246MM
Tax rate = 40%
Long-term growth expectations = 3.8%
Future dividends are forecast as follows:
Year 0: n/a
Year 1: 129
Year 2: 146
Year 3: 165
Year 4: 176
Year 5: 182
(Round your answer to the nearest cent)
Answer:
(1332.73)
Q3. Predict the cash flow for year 10 based on the growth of the following annual cash flows:
Year 1: 11,000
Year 2: 11,578
Year 3: 12,185
Year 4: 12,825
Year 5: 13,498
(Round your answer to the nearest whole dollar)
Answer:
(17433)
Q4.
Use the data below to compute 2014 Tax Rate:
2014
2013
Cash
15
16
Short-term investments
9
70
Accounts receivable
370
320
Inventories
552
417
Property, plant & equipment (net)
929
872
Accounts payable
48
31
Short-term debt
95
61
Accrued liabilities
148
135
Long-term debt
658
581
Common stock
130
130
Retained earnings
768
710
Net revenue
3148
2851
Depreciation expense
111
93
Interest
93
60
Taxes
82
82
Net income
254
124
Answer:
(24.40)
Q5. Use the data below to compute 2014 OCF (Operating Cash Flow):
2014
2013
Cash
15
17
Short-term investments
9
68
Accounts receivable
370
316
Inventories
553
417
Property, plant & equipment (net)
927
871
Accounts payable
47
32
Short-term debt
98
64
Accrued liabilities
148
135
Long-term debt
661
583
Common stock
130
130
Retained earnings
771
713
Net revenue
3143
2853
Depreciation expense
114
92
Interest
92
60
Taxes
81
81
Net income
255
123
(Round to the nearest whole dollar)
Answer:
(439)
Q6.
Use the data below to compute the change in NOWC (Net Operating Working Capital)
2014
2013
Cash
16
17
Short-term investments
6
65
Accounts receivable
368
318
Inventories
550
415
Property, plant & equipment (net)
926
874
Accounts payable
47
30
Short-term debt
99
60
Accrued liabilities
146
135
Long-term debt
663
584
Common stock
130
130
Retained earnings
767
711
Net revenue
3144
2855
Depreciation expense
114
95
Interest
89
61
Taxes
79
84
Net income
253
122
(Round to the nearest whole dollar)
Answer:
(156)
Q7.
Use the data below to compute the change in Gross Fixed Assets (i.e. Change in Gross property, plant & equipment)
2014
2013
Cash
14
20
Short-term investments
9
70
Accounts receivable
367
320
Inventories
551
420
Property, plant & equipment (net)
926
870
Accounts payable
47
32
Short-term debt
95
60
Accrued liabilities
150
133
Long-term debt
658
582
Common stock
130
130
Retained earnings
769
710
Net revenue
3143
2853
Depreciation expense
113
90
Interest
88
63
Taxes
79
82
Net income
251
123
(Round to the nearest whole dollar)
Answer:
(169)
Q8.
Use the data below to compute 2014 FCF (Free Cash Flow):
2014
2013
Cash
13
20
Short-term investments
5
69
Accounts receivable
366
319
Inventories
555
419
Property, plant & equipment (net)
928
871
Accounts payable
50
35
Short-term debt
96
64
Accrued liabilities
149
135
Long-term debt
663
584
Common stock
130
130
Retained earnings
769
712
Net revenue
3146
2852
Depreciation expense
113
95
Interest
89
60
Taxes
81
81
Net income
255
121
(Round to the nearest whole dollar)
Answer:
(119)
(17.64)
Explanation / Answer
1) After tax cost of debt
=7.38%(1-tax rate)
=7.38%(1-0.4)
=7.38%(0.6)
=4.428%
Statement showing WACC
2) Present value pf future cash flows
3) Statement showing Dividend for 10 years
4) Statement showing Tax rate
Source of capital Amount Weight K WACC Equity 1249 68.40% 17.64% 12.066% Debt 577 31.60% 4.43% 1.399% 1826 13.465%Related Questions
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