Question
Assume that a public corporation has 10,000,000 shares outstanding and faces a marginal tax rate of 35%. Also, assume that this corporation plows-back 100% of
Assume that a public corporation has 10,000,000 shares outstanding and faces a marginal tax rate of 35%. Also, assume that this corporation plows-back 100% of its net income. First, you are to create the necessary Balance Sheets and Income Statement and then calculate the annual Cash Flow from Assets (aka: CFFA or Free Cash Flows (FCF)) using only (and explaining) the Cash Flow Identity. A constraint here, however, is that your CFFA must range between $16,000,000 and $19,000,000 annually. Second, after calculating CFFA via the Cash Flow Identity, you are to assume that this corporation is a constant-growth perpetuity and estimate its present value (aka: intrinsic value). Assume the market determined risk adjusted required rate of return (aka: the appropriate discount rate, WACC) is 6.375% for this corporation. Said another way, you are to replicate and explain the relevant parts of the textbook, notes, and lectures associated with this question. Teach me the concepts.
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