Question
Good Times Inc. has current sales of $7,500 (in millions), an operating ratio of 6%, a capital requirement ratio of 40%, a tax rate of
Good Times Inc. has current sales of $7,500 (in millions), an operating ratio of 6%, a capital requirement ratio of 40%, a tax rate of 40% and a corporate cost of capital of 8%. Under new management sales are expected to grow 15% in Yr 1, 15% in Yr 2, 10% in Yr 3, 5% in Yr 4 and then grow at a constant rate of 4% after Yr 4. In addition, the firm has the following balance sheet items: (000,000) Short-term investments = $25 Short-term debt (notes payable) = $250 Long-term debt (bonds) = $300 Preferred stock = $30 Number of shares of common stock = 75 a) What is the firm's free cash flow at the end of Yr 1? b) What is the firms horizon value at the end of Yr 4? c) What is the firms total value today? d) What is the firms current equity value of price per share?
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