Equity Market Capitalization Business Questionnaire
Order Number Y47874HDUEW Type of Project Essay/Research Paper Writer Level PHD/MASTERS Writing Style APA/Harvard/MLA/CHICAGO Citations 5 Page Count 3-15
000 Equity Market Capitalization Business Questionnaire
- Company A has 2000 shares outstanding and current stock price is $300/share. Accordingly, company A’s balance sheet is as follows (in market value).
Surplus cash $150,000 Debt $0
Fixed assets and net working capital $450,000 Equity market capitalization $600,000
A shareholder holds one share of the stock. Now, company A decides to payout the surplus cash (only for the current period). (only put
numbers, no comma or $ sign)
(a). If company A decides to payout all the surplus cash as dividends, what’s the new equity market capitalization of the company on the balance
What’s the new stock price per share? $ /share
How much can the shareholder receive as dividend/share? $ /share
What’s shareholder’s wealth (per share) in the current period including both cash income and value of the stock held by the shareholder? $ /share
(b). If company A decides to payout all the surplus cash as share repurchase, how many shares can it repurchase? shares
What’s the number of shares outstanding now? shares
What’s the new equity market capitalization of the company on the balance sheet? $
What’s shareholder’s wealth in the current period including both cash income and value of the stock held by the shareholder? Assume the
shareholder still holds one share of the stock. $ /share
- The market-value balance sheet and other financial data for Company XXX are listed below.
Asset value $1,000,000 Debt $400,000
Cost of debt 6%
Cost of equity 12%
Marginal tax rate 21%
You are the financial manager of company XXX is considering a project that requires $310,000 investment today and expects to generate a
perpetual cash flow of $30,000 each year (after-tax). This after-tax cash flow takes no account of interest tax shields on debt supported by
the project. Assume no depreciation. The company issues $80,000 debt at 6% interest rate to finance the project and will keep the
debt amount fixed once issued. The issuing cost is 4000. You want to calculate APV of the project. Please show all your work to get full
credit (keep four decimals including percentage to avoid rounding error).
(a). What’s cost of capital used to calculate base-case NPV (in %)?
(b). What’s base-case NPV?
(d). What’s PV of interest tax shields?
(e). What’s the APV of the project considering both PV of interest tax shield and issuing cost?
- You are the financial manager of a company with market value of debt $300,000 and equity $700,000. The cost of debt is 5% for your company and cost of equity is 11%. Your company is tempted to acquire Company Z. You want to estimate the value of Company Z. The following table sets out the information that you need to forecast company Z’s free cash flows (the highlighted numbers are all forecasted numbers). You can assume the cash flow in year 0 has already occurred when you calculate the value of the business. Value horizon is 2 years. From year 3 onward, you assume a long-term growth rate of 3.5% each year. Company Z has a debt ratio (D/V) of 20% and will keep the debt ratio constant. Assume the cost of debt for company Z is also 5%. Marginal tax rates for both companies are 21%.
Cost of goods sold
Net working capital
Gross fixed assets
Investment in fixed assets
(change in gross fixed assets)
Investment in working capital
You will use “adjust discount rate” approach to calculate the value of Company Z (keep four decimals). Show are your inputs to get full credit. Please don’t attach your work in excel here, I won’t grade it.
(a). What’s the discount rate you will use to discount the free cash flow given that Company Z’s debt ratio is different from your company? [9 points]
(b). Forecast Company Z’s after-tax profit over the next 3 years. Show your work to derive the after-tax profit in year 2 (don’t need to show after-tax profit in year 1 and 3)? [5 points]
(c). Calculate free cash flows over the next 3 years. Specifically, what’s the free cash flow in year 2 (don’t need to show your work to drive free cash flow in year 1 and 3)? [7 points]
(d). What’s the present value of horizon value? [7 points]
(e). What’s the present value of the firm? [6 points]
Equity Market Capitalization Business Questionnaire
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