may have one of four values next year: $150 million‚ $135 million‚ $95 million‚ and $80 million. These outcomes are all equally likely‚ and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose the risk-free interest rate is 5% and assume perfect capital markets. a. What is the initial value of Gladstone’s equity without leverage? Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year. b. What is the initial value of
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Estimate cash flows – Cash - after tax‚ consumable – Sometimes easy (fixed incomes)‚ sometimes hard (residual claims) Choose a discount rate – opportunity rate on alternative – risk adjusted Calculate present value and net present value and decide if worth more than costs J. K. Dietrich - FBE 532 – Spring 2006 Updated Estimates in Valuation Eskimo Pie Profit/Cashflow ’91 92 93 Sales $61.0 $ 64.9 $ 65.7 Operating Expenses 41.4 44.7 45.2 SG&A 15.8 16.8 17.0 Op. Profit $3.8 $3.5 $3.5 Free Cash
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the CAPV. Our conclusions from doing the above exercise are the following: • • • • • • We believe that WHC’s revenue can grow at a rate in the range of 8%-10% Based on the steady cash flows of infrastructure businesses and the relatively low country risk of Hong Kong (embedded on the unlevered beta and the risk free rate respectively) we assume a discount rate of 9%-10% We believe that the capital structure post acquisition could easily support 68% debt to assets ratio (conservative based on DSCR
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Introduction Target Corporation is in the market to deliver a higher quality product and experience to a more upscale consumer than its competitors. This allows Target to have very specific advantages in the competitive environment. The combination of these two things results in unique performance characteristics in financial performance. All of this is combined to make a forecast on the future of Target and a decision to buy Target shares as an investment. Competitive Environment Rivalry among
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Interco | | | | | | | | Formerly a footwear manufacturing company‚ Interco developed into a diversified company that comprised subsidiary corporations in four major business areas: apparel manufacturing‚ general retail merchandising‚ footwear manufacturing and retailing‚ and furniture and home furnishings. Due to the fact that Interco ’s subsidiaries operated as autonomous units and lacked integration between its operating divisions‚ the company is particularly vulnerable
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sustain the rate of savings. As part of rationalization of operations‚ some assets will be sold generating a positive cash flow of $20 million net of tax in years 1 and 2 and $10 million in year 3. The analyst judges that these costs savings are rather certain‚ reflecting a degree of risk consistent with the variability in the firm’s EBIT. Accordingly‚ the analyst decides to discount the cash flow at the firm’s cost of debt of 6%. The merger will expand revenues through cross-selling of products‚ efficient
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Discounted Cash Flow Valuation of Aggregate Reserves Discounted Cash Flow Valuation – Proved Developed Reserves Discounted Cash Flow Valuation – Proved Undeveloped Reserves Discounted Cash Flow Valuation – Probable Reserves Discounted Cash Flow Valuation – Possible Reserves Question 3 To value MW Petroleum we would consider the assets in place and the option bearing assets discretely. The assets in place consist of the proved developed reserves since they are already producing a
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Little Stone Company: Beta 1.5 Stock market risk premium 11% Risk free rate 3% Current interest rate on debt 15% Tax rate 33.3% Capital Structure 50% debt and 50% equity Shares outstanding 2.5 million Long-real growth rate 2% Long-term inflation rate 2% Debt outstanding $1‚500‚000 and excess cash $500‚000 Forecasted gross profit margin 25% Current year free cash flow (FCF) $2 million LSC’s 5-year forecasted FCF growth rates 10% next year
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www.moodys.com Rating Methodology Table of Contents: Summary About the Rated Universe About This Rating Methodology The Key Rating Factors Assumptions and Limitations and Rating Considerations That are not Covered in the Grid Conclusion: Summary of the GridIndicated Rating Outcomes Appendix A: Global Chemcial Industry Methodology Factor Grid Appendix B: Methodology GridIndicated Ratings Appendix C: Observations and Outliers for Grid Mapping Appendix D: Chemical Industry Overview Appendix E:
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International Journal of Industrial Organization 21‚ 625-653 Hay‚ D Halpern‚ P.J.‚ 1973‚ Empirical Estimates of the Amount and Distribution of Gains to Firms in Mergers‚ Journal of Business October 1975‚ 554-575 Hanson‚ R.C.‚ 1992‚ Tender offers and free cash flow‚ Financial Review 27‚ 185-209 Healy‚ P.M.‚ K.G. Palepu and R.S. Ruback‚ 1992‚ Does Corporate Performance improve after Merger‚ Journal of Financial Economics 31‚ 135-175 Higson‚ C.‚ and J Higgings RC and Schall LC‚ 1975‚ Corparate bankruptcy
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