Estimate the enterprise value of Heavy Metal.
FIN310 Week 5 Homework Problems 7.4, Assume Evco, Inc. has a current stock price of $50.00 and will pay a $2.00 dividend in one year; its equity cost of capital is 15%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? 7.9 Ovit, Inc. has preferred stock with a price of $20.00 and a dividend of $1.50 per year. What is its dividend yield? 7.13 Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6.0% per year, what is its price per share if the firm’s equity cost of capital is 11.0%? 7.17 Cooperton Mining just announced it will cut its dividend from $4.00 to $2.50 per share and use the extra funds to expand. Prior to the announcement, Cooperton’s dividends were expected to grow at a 3.0% rate, and its share price was $50.00. With the planned expansion, Cooperton’s dividends are expected to grow at a 5.0% rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton’s risk.) Is the expansion a good investment? 10.1 This year, FCF Inc. has earnings before interest and taxes of $10 million, depreciation expenses of $1 million, capital expenditures of $1.5 million, and has increased its net working capital by $500,000. If its tax rate is 35%, what is its free cash flow? 10.3 The present value of JECK Co.’s expected free cash flow is $100 million. If JECK has $30 million in debt, $6 million in cash, and 2 million shares outstanding, what is its share price? 10.6, Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: Year: 1 2 3 4 5 FCF ($m’s) 53 68 78 75 82 Thereafter, the free cash flows are expected to grow at the industry average of 4.0% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14.0%: a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $300 million, and 40 million shares outstanding, estimate its share price. 10.10 You are evaluating the stock price of Kroger, a grocery store chain. It has forward earnings per share of $3.00. You notice that its competitor Safeway has a P/E ratio of 13. What is a good estimate of Kroger’s stock price? 10.12 CSH has EBITDA of $5 million. You feel that an appropriate EV/EBITDA ratio for CSH is 9. CSH has $10 million in debt, $2 million in cash, and 800,000 shares outstanding. What is your estimate of CSH’s stock price?
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