7. Preferred stock Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock. Characteristic Debt Common stock O Most issues pay quarterly dividends. Some issues are perpetual, and do not mature. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company pays an annual dividend rate of 11.00% on its preferred stock that currently returns 14.74% and has a par value of $100.00 per share. The preferred stock issue does not mature, and computes its annual dividend as the product of its dividend rate and its par value. What is the current market value of Cute Camel's preferred stock? O $80.60 per share O $74.63 per share O $65.67 per share O $102.99 per share Suppose that due to high inflation, interest rates rise and pull the preferred dividend yield to 21.37%. Then the value of Cute Camel's preferred stock This is because interest rates (and security returns) and security values are, will to related. 6. Market multiple analysis The free cash flow (FCF) valuation model, the discounted cash flow model, and the corporate valuation model are the most widely used valuation techniques. Often these valuations are accompanied by market multiple analysis, which is based on the fundamental concept that similar assets should have similar values. Cold Goose Metal Works Inc. is a privately owned firm with few investors. Investors' forecast of next year's earnings per share (EPS) is $6.00. The average price-to-earnings (P/E) ratio for companies similar to Cold Goose in the S&P 500 is 10. Cold Goose's common stock has an estimated intrinsic value of S per share. (Note: Round your answer to two decimal places.) The market multiple analysis process is also used to calculate the value of a company, which can then be spread across the number of common shares outstanding to estimate a firm's per-share intrinsic value. Suppose you have the following information for Blue Badger Biotech Inc.: Blue Badger Biotech Inc. Year 1 Year 2 EBITDA $15,300 $18,300 Total value of equity $153,000 $165,000 Total firm value $198,900 $264,000 In Year 1, Blue Badger has an entity multiple of (Note: Round your answer to two decimal places). Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dozier's weighted average cost of capital is WACC - 14% Year 2 1 3 Free cash flow (5 millions) -$20 $30 $40 a. What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. million b. What is the current value of operations for Dozier? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million c. Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Do not round intermediate calculations, Round your answer the nearest cent. 12. Problem 8-17 (Value of Operations) eBook Problem Walk-Through Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 13%. a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent. $ b. Calculate the value of Kendra's operations. Do not round intermediate calculations. Round your answer to the nearest cent. 7. Preferred stock Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock. Characteristic Debt Common stock O Most issues pay quarterly dividends. Some issues are perpetual, and do not mature. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company pays an annual dividend rate of 11.00% on its preferred stock that currently returns 14.74% and has a par value of $100.00 per share. The preferred stock issue does not mature, and computes its annual dividend as the product of its dividend rate and its par value. What is the current market value of Cute Camel's preferred stock? O $80.60 per share O $74.63 per share O $65.67 per share O $102.99 per share Suppose that due to high inflation, interest rates rise and pull the preferred dividend yield to 21.37%. Then the value of Cute Camel's preferred stock This is because interest rates (and security returns) and security values are, will to related. 6. Market multiple analysis The free cash flow (FCF) valuation model, the discounted cash flow model, and the corporate valuation model are the most widely used valuation techniques. Often these valuations are accompanied by market multiple analysis, which is based on the fundamental concept that similar assets should have similar values. Cold Goose Metal Works Inc. is a privately owned firm with few investors. Investors' forecast of next year's earnings per share (EPS) is $6.00. The average price-to-earnings (P/E) ratio for companies similar to Cold Goose in the S&P 500 is 10. Cold Goose's common stock has an estimated intrinsic value of S per share. (Note: Round your answer to two decimal places.) The market multiple analysis process is also used to calculate the value of a company, which can then be spread across the number of common shares outstanding to estimate a firm's per-share intrinsic value. Suppose you have the following information for Blue Badger Biotech Inc.: Blue Badger Biotech Inc. Year 1 Year 2 EBITDA $15,300 $18,300 Total value of equity $153,000 $165,000 Total firm value $198,900 $264,000 In Year 1, Blue Badger has an entity multiple of (Note: Round your answer to two decimal places). Free Cash Flow Valuation Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFS) during the next 3 years, after which FCF is expected to grow at a constant 5% rate. Dozier's weighted average cost of capital is WACC - 14% Year 2 1 3 Free cash flow (5 millions) -$20 $30 $40 a. What is Dozier's horizon value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. million b. What is the current value of operations for Dozier? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million c. Suppose Dozier has $10 million in marketable securities, $100 million in debt, and 10 million shares of stock. What is the intrinsic price per share? Do not round intermediate calculations, Round your answer the nearest cent. 12. Problem 8-17 (Value of Operations) eBook Problem Walk-Through Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 13%. a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent. $ b. Calculate the value of Kendra's operations. Do not round intermediate calculations. Round your answer to the nearest cent