(TCO G) Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?
Last year’s sales = S0 $200.000 Last year’s accounts payable $50,000
Sales growth rate = g 40% Last year’s notes payable $15,000
Last year’s total assets = A0* $135,000 Last year’s accruals $20,000
Last year’s profit margin = PM 20% Target payout ratio 25%
(TCO H) Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?
Annual sales = $45,000
Annual cost of goods sold = $30,000
Inventory = $4,500
Accounts receivable = $1,800
Accounts payable = $2,500
a. 28 days
b. 32 days
c. 35 days
d. 39 days
e. 43 days
(TCO D) The Ackert Company’s last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm’s required return (rs) is 12.0%. What is the best estimate of the current stock price?
(TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)
Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm’s noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?
Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).
Year: 1 2
Free cash flow: -$50 $100
Based on the corporate valuation model, the value of a company’s operations is $1,200 million. The company’s balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of the stock’s price per share?
(TCO F) Which of the following statements is correct?
The MIRR and NPV decision criteria can never conflict.
The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
The higher the WACC, the shorter the discounted payback period.
The MIRR method assumes that cash flows are reinvested at the crossover rate.
Which of the following statements is NOT correct?
The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
The corporate valuation model discounts free cash flows by the required return on equity.
The corporate valuation model can be used to find the value of a division.
An important step in applying the corporate valuation model is forecasting the firm’s pro forma financial statements.
Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.