Question
New Millenium Company earned $2.7 million in net income last year. It took depreciation deductions of $295,000 and made new investments in working capital and
New Millenium Company earned
$2.7
million in net income last year. It took depreciation deductions of
$295,000
and made new investments in working capital and fixed assets of
$103,000
and
$340,000,
respectively.
a. What was New Millenium's free cash flow last year?
b. Suppose that the company's free cash flow is expected to grow at
6%
per year forever. If investors require a return of
9%
on Millenium stock, what is the present value of Millenium's future free cash flows?c. New Millenium has
3.4
million shares of common stock outstanding. What is the per-share value of the company's common stock?
d. What is the company's P/E ratio based on last year's earnings (i.e., trailing earnings)?
e. What is the company's P/E ratio based on next year's earnings (assuming that earnings grow at the same rate as free cash flow).
a. Millenium's free cash flow last year was
$enter your response here.
(Round to the nearest dollar.)b. The present value of Milleniums future free cash flows is
$enter your response here.
(Round to the nearest dollar.)c. The per-share value of the company's common stock is
$enter your response here.
(Round to the nearest cent.)d. The company's P/E ratio based on last year's earnings (i.e., trailing earnings) is
enter your response here.
(Round to one decimal place.)e. The company's P/E ratio based on next year's earnings is
enter your response here.
(Round to two decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started