The following information for Goodtime Corporation applies to problems 6-12 Numb
ID: 2649063 • Letter: T
Question
The following information for Goodtime Corporation applies to problems 6-12 Numbers are in millions except for stock price, g, unless stated otherwise.
$0.6
6. Calculate FCFF wihen the tax rate is 30%. LTD-Long Tern Debt
7.Applying the FCFF constant growth model, begin with EBIT, calculate the value of the firm (in millions) on December 31, 2014(jan 1, 2015) if FCFF grows initially at 10% then at 8% and then at the sustainable rate of 4%
8. Given the value of the firm you calculated above, determine the value of equity per share( BV of debt=MV of debt) when the number of shares outstanding is 1 million?
9. Is the stock correctly priced, explain?
10. Calculated Economic profit
11.Calculate FCFE when the tax rate is 30%
12. Applying the FCFE constant growth model, calculate the value of Equity(in millions) on December 31, 2014 if FCFE grows initially at 20% then at 10% and then at the sustainable rate of 4%. Given there are 1000 million shares outstanding, what should be the fair price of a share of stock?
LTD DEC 2013 7.1 Retention ratio 60% LTD Dec 2014 7.5 NI 2.00 BV(Dec 31, 2013 10.05 Invest in NWC$0.6
BV(Dec 31, 2014 11.25 EBIT $3.46 Required return 12% Depreciation $0.1 Stock price 18 NET Capital Invest $0.5 g (sustainable) 4% Interest Expense $0.6Explanation / Answer
Answer:
FCFF = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure
= 3.46 *(1-0.30) + 0.1 - 0.6 -0.5
=2.422 + 0.1 - 0.6 -0.5
=1.422
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