ICA #2 Fall 2021

1. A firm has EBIT of $57 million net of 3 million in depreciation. The firm had capital expenditures of 4.75 million and a change in net working capital of 1 million. They have a tax rate of 25%. The firm expects FCF to grow at 4.0625% in perpetuity and the required rate of return is 9.25%.

a. What is the estimate current value of the firm?

b. The firm has a .25 D/E ratio. What is the estimated value of the Debt and Equity?

2. The Hi-Top Company just paid a dividend of $0.60 and is expected to grow at 14 percent for the next 5 years after that the expected growth rate is forecast to drop to 6 percent for the foreseeable future. The required rate of return on the stock is 11 percent. What is the estimated price of the stock?

3. A company with a current book value of 44.68 per share reported EPS of 5.12. The anticipated growth rate for the stock is .08 but the required return is .12.

a. What is the value of the stock based on residual income?

b. What is the estimated P/E for this firm?