7. Using the corporate valuation model, the value of a company\'s operations is

Question

7. Using the corporate valuation model, the value of a company's operations is $850 million. The company's balance sheet shows $50 million in short-term investments that are unrelated to operations. The balance sheet also shows $50 million in accounts payable, $100 million in notes payable, $200 million in long-term debt, $40 million in common stock (par plus paid-in-capital). and S160 milion in retained earnings. What is your best estimate for the market value of equity? a. $300 million b. $350 million c. $500 million d. $600 million e $700 million S. Bottling's December 31st balance sheet is given below: Cash Accounts receivable Inventory Net fixed assets s 10 25 40 75 Accounts payable Notes payable Accrued wages and taxes Long-term debt Common equity s 15 20 15 Total liabilities and equity Total assets S129 Sales during the past year were $100, and they are expected to rise by 50 percent to $150 during next year. Also, during last year fixed assets were being utilized to only 85 percent of capacity (excess capacity). Assume that profit margin will remain constant at 5 percent company will continue to pay out 60 percent of its earnings as dividends. To lar, what amount of nonspontaneous, additional funds will be needed the nearest whole dol during the next year (use proforma method)? a. $57 b. $51 c. $36 d. $40 e. $48 9. LG is considering two mutually exclusive projects, Project A and Project B. The projects are of equal risk and have the following cash flows: Project A Project B Year Cash Flows -$100,000 40,000 25,000 70,000 40,000 Cash Flows -$100,000 30,000 15,000 78,000 55,000 At what rate (WACC) would the two projects have the same NPV (i.e, crossover rate)? a. 6.71% b. 7.53% c. 8.31% d. 10.03% e. 11.24%

Explanation / Answer

Value of operations:$850

7

Value of operations:$850

Short-term investments:$50 Notes payable:$100 Long-term debt:$200 Assuming that the book value of debt is close to its market value, the total market value of the company is: Total Market Value = Value of Operation + Value of non operation asset =$850+50 =$900 Value of Equity =Total MV *Long- and Short-term Debt =$900-$200-$100 =$600 MILLION The book value of equity Fgures are irrelevant for this problem. Also, the accounts payable are not relevant because they were netted out when the fcf was calculated ANSWER IS D. 600 MILLION

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.