Halliford Corporation expects to have earnings this coming year of $2.87 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 51% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25.13% per year. Any earnings that

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

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Nelly Enterprises will have earnings per share of $3.5 for the coming year. Nelly plans to retain all its earnings for the next four years. For the subsequent three years, the firm plans on retaining 50% of its earnings .Retained earnings will be invested in projects with expected return of 15% per year for the first seven years. It will then retain only 25% of its earnings for the next three years and retained earnings will be invested in projects with an expected return of 20% per year. After that Nelly will retain only 15% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 12% per year. If Nelly's equity cost of capital is 10%, then what is the price of a share of Nelly's stock?
Halliford Corporation expects to have earnings this coming year of $3.000 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 50% of its earnings. It will retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 25.0% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10.0%, what price would you estimate for Halliford stock?
Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $1.6 million. Its depreciation and capital expenditures will both be $301,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $47,000 over the next year. Its tax rate is 30%. If its WACC is 8% and its FCFs are expected to increase at 5% per year in perpetuity, what is its enterprise value?
Victoria Enterprises expects earnings before interest and taxes (EBIT) next year of $2.1 million. Its depreciation and capital expenditures will both be $286,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $47,000 over the next year. Its tax rate is 35%. If its WACC is 10% and its FCFs are expected to increase at 5% per year in perpetuity, what is its enterprise value? The company's enterprise value is $ (Round to the nearest dollar.)
Crazytown Motors is expected to have an EBIT of $680,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $45,000, $9,000, and $40,000, respectively. All cash flow items are expected to grow at 6 percent per year for two years. After Year 3, the CFA is expected to grow at 3 percent indefinitely. The company currently has $3 million in debt and 250,000 shares outstanding. The company's WACC is 9.5 percent and the tax rate is 20 percent. What is the present value of terminal value? Show your steps. What is the price per share of the company's stock? Show your steps.
Matt’s Manufacturing, Inc. expects to earn $45 million per year in perpetuity if it does not undertake any new projects. However, the firm has an investment opportunity that will generate annual earnings of $10 million in perpetuity, beginning two years from today. This investment has an initial (upfront) cost of $10 million today and $5 million next year. The firm has 10 million shares of common stock outstanding, and the required rate of return on the stock is 10% percent. What is the stock price per share if the firm undertakes the investment?
The Podrasky Corporation is considering a $250 million expansion (capital expenditure) program next year. The company currently has $400 million in net fixed assets on its books. Next year, the company expects to earn $90 million after interest and taxes. The company also expects to maintain its present level of dividends, which is $10 million. If the expansion program is accepted, the company expects its inventory and accounts receivable each to increase by approximately $10 million next year. Long-term debt retirement obligations total $10 million for next year, and depreciation is expected to be $75 million. The company does not expect to sell any fixed assets next year. The company maintains a cash balance of $2 million, which is sufficient for its present operations. If the expansion is accepted, the company feels it should increase its year-end cash balance to $10 million because of the increased level of activities. For planning purposes, assume no other cash flow changes for…
Crarytown Motors is expected to have an EBIT of $680,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $45,000, $9,000, and $40,000respectively. All cash flow items are expected to grow at 6 percent per year for two years. After Year 3, the CFA is expected to grow at 3 percent indefinitely. The company currently has $3.5 million in debt and 250,000 shares outstanding The company's WACC is 9.5 percent and the tax rate is 20 percent. What is the present value of terminal value? Show your steps.
Berea Resources is planning a$75million capital expenditure program for the coming vear. Next year, Berea expects to report to the IR5 earnings of s40 milion after interest and tanes The company presently has 22 milion shares of commoo stock issued and outstanding. Dividend payments are expected to increase from the present level of s8 millon co 512 manion, The company expects its current asset needs to increase from a current level of$22millon to$27malion, Current liabilibes, exduding short-tern bank berrowirgs, are expected to incease from$13million to$18milion. Interest payments are s5 milion next year, and long-term debt retiremert obligations are$6million next year. Deoreciation next year is expectad to be$16million on the company's financial statements, but the company will report depreciation of$19million for tax purposes. How much extemal financing is required by Berea for the coming yean? Enter your answer in malions. For example, an answer of tt milion should be enternd as 1,…
XYZ Corporation is considering an expansion project that will produce $90,000 worth of annual operating cash flows for the next four years. During the life of this project, the firm’s CFO expects inventory to increase by $35,000 and also expects accounts receivable to decrease by $10,000. The CFO believes that accounts payable will increase by $20,000. At the end of the project (year 4), the CFO assumes that net working capital will return to its normal level. The project requires the purchase of machinery at an initial cost of $70,000. Machinery installation costs are $10,000. This machine will be depreciated straight-line to a zero book value over the life of the project, but can be salvaged at the end of the project (year 4) creating a $30,000 before-tax cash flow. The company also owns land that will be used for the purpose of this expansion project. Luckily, the company bought this land pre-COVID, 3 years ago for only $25,000. At the time of purchase, the company paid $6,000 to…
The management of Amex Corp. plans to meet a future capital expenditure by depositing $25,000 into a savings account. Annually thereafter, for 15 years, the firm intends to increase this annual savings amount by 5%. The account is expected to earn 8% interest annually. Required: Compute the value of Amex’s investment today.
An initial investment of $40,000 in Blue's Bunks is expected to pay off greatly-but not equally-in each of the next 5 years. The company expects a small increase in operating income in year 1 of $4,500, but then steadily larger improvements in profitability in years 2-5: $10,000, $21,875, $20,750, and $24,625, respectively. The year prior to this investment, the company's ARR was 9%, and its tax rate was 20%. What level of ARR does this projection provide? (Round answer to 2 decimal places, e.g. 15.25%.) ARR 87.94 % Is it likely that the company will move forward with this investment? Yes