Lizo is a public company with the following characteristics (in the most recent year): At the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Lizo is a public company with the following characteristics (in the most recent year): At the start of the year, the firm had book value of equity of $400 million, debt outstanding (book value as well as market value) of $200 million, and cash balance of $100 million. These numbers did not change during the most recent year. The cost of capital for the firm is 6% next year, 8% the year after and 9% thereafter (in perpetuity). Shares outstanding: 200 million After-tax operating income: $100 million Revenues: $800 million a) Lizo's after-tax operating income is expected to grow 20% in each of the next 3 years. You expect Lizo to maintain its current return on invested capital (ROIC) forever. Estimate the free cash flows to the firm in each of the next 3 years. b) At the end of year 3, you expect Lizo to be in stable growth, growing 5% a year in perpetuity, while maintaining its current return on invested capital. Estimate the terminal value at the end of year 3. c) Estimate the market value of equity today. d) Lizo has 50 million options outstanding. Assume that the market value of each option is $5. Using the "market value approach", estimate the value per share for Lizo today. Lizo is a public company with the following characteristics (in the most recent year): At the start of the year, the firm had book value of equity of $400 million, debt outstanding (book value as well as market value) of $200 million, and cash balance of $100 million. These numbers did not change during the most recent year. The cost of capital for the firm is 6% next year, 8% the year after and 9% thereafter (in perpetuity). Shares outstanding: 200 million After-tax operating income: $100 million Revenues: $800 million a) Lizo's after-tax operating income is expected to grow 20% in each of the next 3 years. You expect Lizo to maintain its current return on invested capital (ROIC) forever. Estimate the free cash flows to the firm in each of the next 3 years. b) At the end of year 3, you expect Lizo to be in stable growth, growing 5% a year in perpetuity, while maintaining its current return on invested capital. Estimate the terminal value at the end of year 3. c) Estimate the market value of equity today. d) Lizo has 50 million options outstanding. Assume that the market value of each option is $5. Using the "market value approach", estimate the value per share for Lizo today.
Expert Answer:
Answer rating: 100% (QA)
Explanation a Since Lizo wants to keep the constant return on the invested capital the aftertax operating income for the subsequent years is calculate... View the full answer
Related Book For
Government and Not for Profit Accounting Concepts and Practices
ISBN: 978-1118983270
7th edition
Authors: Michael Granof, Saleha Khumawala, Thad Calabrese, Daniel Smith
Posted Date:
Students also viewed these accounting questions
-
On January 1, 20X5, Company D(CD), a public company with a December 31 year-end, granted 500 options to each of its 300 senior employees. The company initially estimated that 3 of the employees would...
-
The Atlantic Refinery Corporation ( ARC) is a public company headquartered in St. Johns, Newfoundland. On 31 December 20X5, the post- closing trial balance included the following accounts ( in...
-
You have invested in a company with the following statistics. |Annual Revenue| $2M |Annual profit |$400k (20% of revenues) |Cost of Purchase |$7M - all paid at the start. |Annual Growth - |20% in...
-
The graph of f is given. (a) Why is f one-to-one? f is one-to-one because it passes the ---Select--- ? (b) What are the domain and range of f ? ?1 ?(Enter your answers in interval notation.) domain ?...
-
Under IFRS, when do firms test plant assets and finite-life intangible assets for impairment?
-
Vines and Daughter manufactures and sells swimsuits for $40 each. The estimated income statement for 2017 is as follows: Sales ............................................$2,000,000 Variable costs...
-
Juliette Shulof Furs (JSF) was a New York corporation that had been in the fur-dealing business for 15 years. George Shulof, an officer of JSF, attended two auctions conducted by Finnish Fur Sales...
-
Stevens Textiles's 2010 financial statements are shown below: Balance Sheet as of December 31, 2010 (Thousands of Dollars) a. Suppose 2011 sales are projected to increase by 15% over 2010 sales. Use...
-
Differentiate between Market and Book Value of an asset. Define how the Book Value of an asset is calculated for tax purposes. Explain how the market or sales value of an asset might be estimated.
-
Investing involves making informed decisions, which means researching companies and industries before plunking down your hard-earned money! An excellent source of information about a company is the...
-
Complete the leveling note of the given problem BS BM 10 3.45 TP 1 4.68 TP 2 6.85 TP 3 9.63 BM 20 Sum- Sta. HI FS 2.36 1.23 1.79 2.46 Elev. 753.20
-
Pizza Place, a national pizza chain, is considering purchasing a smaller chain, Western Mountain Pizza. Pizza Places analysts project that the merger will result in incremental cash flows of $1.5...
-
Youre the general manager of a new NFL team in Oklahoma City. The owner gives you the task of deciding which uniforms the new team will wear in the upcoming season, and suggests you gather data from...
-
Wired Beverages has developed two new sodas that they are debating putting on the market. However, they will only be able to release one of them. Develop an experiment design that compares the taste...
-
The Henderson Companys bonds currently sell for $1,275. They pay a $120 annual coupon, have a 20-year maturity, and a par value of $1,000, but they can be called in 5 years at $1,120. What are their...
-
Describe how the formula for a zero growth stock can be derived from the formula for a normal constant growth stock.
-
4. A 6 person committee is to be chosen at random from 15 republicans, 14 democrats, and 3 independents. Answer in un-simplified fraction. 1. What is the probability that the committee will be...
-
Dan and Diana file a joint return. Dan earned $31,000 during the year before losing his job. Diana received Social Security benefits of $5,000. a. Determine the taxable portion of the Social Security...
-
A city included the schedule above in its financial statements. 1. Prepare entries to reflect the activity relating to improvements and equipment in both the general-fund and the government-wide...
-
In 2018, the Bakersville Independent School District incurred $12 million in expenditures for teachers' salary and benefits. In that year, the legislature of the state in which the district is...
-
A city received two state grants in fiscal 2018. The first was an award for a maximum of $800,000, over a two-year period, to reimburse the city for 40 percent of specified costs incurred to operate...
-
What accounts for the disparity in NPMO between the statistical 6 and the popular Six Sigma approach?
-
What is the most common use of stratification?
-
What purpose is served by flowcharts?
Study smarter with the SolutionInn App