1. Calculate the per share value of ABC firm using the following information:

• Year 0 sales per share is 75$
• Sales grow at a rate of 10% annually for 3 years and 5% annually thereafter.
• Net profit margin is 15% of sales for ever
• Net investment in fixed capital(net of depreciation) is 40% of the sales increase
• Annual increase in WC is 30% of the sales increase
• Debt financing is 60% of the net investments in capital equipment and working capital
• ABC beta is 1.5, risk free rate of return is 8%, equity premium is 5%

 

2. Calculate the per share value of XYZ firm using the following information:

• Year 0 EPS is $5
• EPS will increase at the following declining growth rates over the next 5 years: 35%, 20%, 15%, 11%, 9%
• Net investment in fixed capital (net of depreciation) per share are as follows:4.00, 3.50, 2.00, 1.00, 0.5
• Net investment in WC each year will be 40% of the net investment in fixed capital
• 40% of the net investment in fixed capital and WC will be financed by new debt financing
• Current market conditions dictate a risk free rate of8%, an equity risk premium of 6%, and a beta of 1.6 for XYZ

 

3. The following financial statements and additional information belong to ABC Company.

ABC's Balance Sheets(Millions of Dollars)			2020	2021
Assets
Cash and equivalents			$      160	$                60
Accounts receivable			400	520
Inventories			620	820
Total current assets			$ 1.180	$         1.400
Net fixed assets			$ 2.900	$         3.500
Total assets			$ 4.080	$         4.900
Liabilities and equity
Accounts payable			$      350	$             350
Current portion of long term debt			200	540
Total current liabilities			$      550	$             890
Long-term bonds			800	1.100
Total liabilities			$ 1.350	$         1.990
Common stock			1.000	1.000
Retained earnings			1.730	1.910
Total equity			$ 2.730	$         2.910
Total liabilities and equity			$ 4.080	$         4.900
ABC's Income Statement (Millions of Dollars)
			2020	2021
Net sales			$ 5.500	$         6.000
Cost of goods sold (Excluding depr. & amort.)			4.000	4.500
Depreciation and amortization			290	320
Other operating expenses			350	420
Total operating costs			$ 4.640	$         5.240
Earnings before interest and taxes (EBIT)			$      860	$             760
Less interest			68	108
Pre-tax earnings			$      792	$             652
Taxes (25%)			198	163
Net Income			$      594	$             489
Tax rate			25%	25%
Weighted average cost of capital (WACC)			10,00%	10,00%
Shares outstanding (millions)			100	100

 Calculate the 2021 FCFF for ABC Company

1. We assume that the FCFF is expected to grow forever at 5%, calculate the firm value
2. 
   
3. Calculate the value of Equity knowing that the market value of debt is 1 million $.
4. 
   
5. What is the value per share using FCFF approach?

Answer rating: 100% (QA)

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