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Current annual dividend
Div growth (yrs 1, 2)
Div growth (terminal)
Required ROR
Solution
D1 -$
D2 -$
Deployment Specialists pays a current (annual) dividend of $1 and is
expected to grow at 20% for two years and then at 4% thereafter. If the
required return for Deployment Specialists is 8.5%, what is the intrinsic
value of Deployment Specialists stock?
FCF mil
Tax rate
Interest expense mil
Net debt increase mil
FCFE growth
Cost of equity
Solution
FinCorp’s free cash flow to the firm is reported as $205 million. The firm’s
interest expense is $22 million. Assume the tax rate is 35% and the net debt
of the firm increases by $3 million. What is the market value of equity if the
FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?
Net year annual EPS
Plowback ratio
Expected ROE
Market capitalization
Solution
a. Price #DIV/0!
a. MF Corp. has an ROE of 16% and a plowback ratio of 50%. If the coming
year’s earnings are expected to be $2 per share, at what price will the
stock sell? The market capitalization rate is 12%.
b. What price do you expect MF shares to sell for in three years?
CF before Int and Tax
Forecasted growth rate
Plowback ratio
Tax rate
Depreciation
Market cap rate
Debt value
Solution
Before tax cash flow from operations $0
The MoMi Corporation’s cash flow from operations before interest and taxes
was $2 million in the year just ended, and it expects that this will grow by 5% per
year forever. To make this happen, the firm will have to invest an amount equal
to 20% of pretax cash flow each year. The tax rate is 35%. Depreciation was
$200,000 in the year just ended and is expected to grow at the same rate as the
operating cash flow. The appropriate market capitalization rate for the
unleveraged cash flow is 12% per year, and the firm currently has debt of $4
million outstanding. Use the free cash flow approach to value the firm’s equity
