Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please show any work you have to go along with this, thank you! Laika has been working on advanced media tracking technology, which will be
Please show any work you have to go along with this, thank you!
Laika has been working on advanced media tracking technology, which will be available for commercialization in a short period. If they don't invest in the project, they expect to grow at a 4 percent rate in perpetuity, starting from year-end T1 forward. It pays out all earnings as dividends. Their forecast of next year's revenues are $12.25 million; and operating cash flows after tax are forecast at $3.67m. If they invest in a new product line, they anticipate the first after tax operating cash flow from the technology to be $4.55 million, received one year from today. Market demand is expected to result in operating cash flow growth of 25% and 20% rate, respectively, in the next two years after that. Thereafter, competitive pressures are expected to reduce long run growth to 4 percent growth, in perpetuity. Laika expects to invest $65.15 million in the venture immediately to secure these future cash flows. Net working capital spending is estimated at 7% of operating cash flows. Laika has a YTM on its interest bearing debt of 6.5%; Laika does not have a reliable beta, but it knows that firms in this industry have asset betas averaging 1.40. Market conditions are such that the risk free rate is 3.5% and the market risk premium is 5.0%. The company has $35 million in debt and a market value of equity of $85 million. It has 3.0 million shares outstanding and faces a tax rate of 21%. Show all steps and inputs to your final answer. If needed, use the non-tax version of beta (ie Asset beta = Bequity/(1+D/E)). c. What is the value of the project as a Stand-Alone in total? Project Value = What is the value of the project investment on a per-share basis? Project Value Per Share =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