You are presented with the following summary financial statements for Small Time Products: INCOME STATEMENT Sales...
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You are presented with the following summary financial statements for Small Time Products: INCOME STATEMENT Sales Cost of Goods Sold Depreciation EBIT Interest Expense Tax Net Income Cash Accounts Receivable Inventory Current Assets 2019 2,500,000 (1,625,000) (500,000) 375,000 (225,000) 150,000 (37,500) 112,500 Net Property, Plant and Equipment Total Assets BALANCE SHEET 2019 2018 100,000 100,000 200,000 150,000 250,000 275,000 550,000 525,000 3,050,255 3,010,545 3,600,255 3,535,545 Accounts Payable Long-term Debt Equity 2018 2019 250,500 350,500 2,500,000 2,500,000 849,755 685,045 3,600,255 3,535,545 A) Using the financial statements for Small Time Products, calculate the Free Cash Flow to Firm for 2019 B) Small Time Products has a cost of debt of 8%, and an equity beta of 1.3, and is expected to grow at 9% for the next three years, and then at 5% in perpetuity. Assume that the (market) debt-to-equity ratio of the firm is 0.4286. Calculate the value of Small Time Products. Show workings to the nearest cent. Bloomberg data would suggest that the rate of return on treasury bonds are 5% and the market is expected to return 15%. You are presented with the following summary financial statements for Small Time Products: INCOME STATEMENT Sales Cost of Goods Sold Depreciation EBIT Interest Expense Tax Net Income Cash Accounts Receivable Inventory Current Assets 2019 2,500,000 (1,625,000) (500,000) 375,000 (225,000) 150,000 (37,500) 112,500 Net Property, Plant and Equipment Total Assets BALANCE SHEET 2019 2018 100,000 100,000 200,000 150,000 250,000 275,000 550,000 525,000 3,050,255 3,010,545 3,600,255 3,535,545 Accounts Payable Long-term Debt Equity 2018 2019 250,500 350,500 2,500,000 2,500,000 849,755 685,045 3,600,255 3,535,545 A) Using the financial statements for Small Time Products, calculate the Free Cash Flow to Firm for 2019 B) Small Time Products has a cost of debt of 8%, and an equity beta of 1.3, and is expected to grow at 9% for the next three years, and then at 5% in perpetuity. Assume that the (market) debt-to-equity ratio of the firm is 0.4286. Calculate the value of Small Time Products. Show workings to the nearest cent. Bloomberg data would suggest that the rate of return on treasury bonds are 5% and the market is expected to return 15%.
Expert Answer:
Answer rating: 100% (QA)
In order to calculate the Free Cash Flow to the Firm FCFF for Small Time Products for the year 2019 we need to consider the following formula FCFF EBI... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
Posted Date:
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