For the firm described below, what is the firm’s 2010 total cash flow and the firm’s 2010 cash flow to shareholders?

Consider the following information regarding ABC Corporation.

Sales ($ millions)

2009: 1000

2010:1112

Cost of Goods Sold ($ millions)

2009: 500

2010: 556

Other Expenses ($ millions)

2009: 100

2010: 111

Depreciation ($ millions)

2009: 100

2010: 100

Interest Expense ($ millions)

2009: 50

2010: 55

Total Current Assets ($ millions)

2009: 600

2010: 700

Net Fixed Assets ($ millions)

2009: 1800

2010: 2000

Total Current Liabilities ($ millions)

2009: 450

2010: 550

Long-term Liabilities ($ millions)

2009: 900

2010: 975

• The firm’s plowback ratio is 60%

• The firm’s tax rate is 40%

• The company has 30 million shares outstanding. The current stock price is $35.

• The company has two bond issues outstanding. The first issue is 100,000 bonds that have YTM of 5%, coupon rate of 7%, face value of $1000, and mature in 7 years. The second issue is 500,000 bonds with YTM of 8%, face value of $1500, and mature in 13 years. These bonds are currently selling for $1200.

• The expected return on the market is 11%. The risk-free rate is 4%.

• ABC’s beta is 2.15

Answer rating: 100% (QA)

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