Fiesta Labs is a manufacturing company. In the most recent financial year, the firm reported earnings before
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Question:
Fiesta Labs is a manufacturing company. In the most recent financial year, the firm reported earnings before interest and taxes of INR million and it expects these earnings to grow a year for the next years and thereafter, the corporate tax rate is The cost of capital is expected to be for the next years but it is expected to drop to after year The book value of capital at the beginning of the most recent year was INR million and Fiesta Labs, expects to maintain its current return on capital in
perpetuity. Marks a Estimate the free cashflows to the firm each year for the next years
b Estimate the value of the firm at the end of year
c If the firm has a cash balance of INR million and the market value of debt is INR million, estimate the value of equity per share today. There are million shares outstanding
b Leven Enterprises is a public traded company, with million shares outstanding, trading at INRshare and INR million in debt outstanding book and market value The firm currently has a prefax cost of debt of and a cost of capital of The riskfree rate is the equity risk premium is and the marginal tax rate is Shaken by the financial crisis, the firm is planning on issuing new shares and retiring all of its debt. If it does so what will its cost of capital be after the transaction? Marks
P
Vista Inc. is a chemical firm that generated INR million in aftertax operating income on INRI billion in revenues in the most recent year. At the start of that year, it has book value of equity of INR million, debt outstanding of INR million and a cash balance of INR million. The company has million shares outstanding today and is expected to generate its current return on capital in perpetuity. The company\'s cost of capital is expected to be for the next years. Marks
a Vista is expected to grow a year for the next years, while maintaining its current return on capital. Estimate the expected free cash flows to the firm each year for the next years.
b Now assume that Vista\'s stock is trading at INRshare and that the market has correctly priced the stock today and shares your views on cash flows in part a Estimate the terminal value for Vista at the end of year that the market is forecasting.
c Given the terminal value that you have estimated in part b estimate the cost on capital that the market expects for Vista in perpetuity, if the growth rate forever, after year is
Elixir is a publicly traded company in three businesses. The details of the three businesses are provided
below in millions: Marks
Expected growth rate of in perpetuity
INR
Book equity INR
Book debt
INR
Cost capital
Chemicals
Real Estate
INR
INR
INR
EBIT
INR
Steel
INR
INR
The company has no cash balance.
a Estimate the value of the operating assets of the company assuming it stays with its existing business mix.
b Now assume that you have been brought in as a CEO and are thinking about restructuring the company. You believe that you can divest the real estate business for of book value of invested capital and reinvest half the divestiture proceeds in the steel business and the other half in the chemical business. If you can maintain the current returns on capital in each of these businesses, estimate the new value for the business.
Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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