Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please solve and show Please solve and show work for the following 4 questions. Please calculate the Enterprise Value, Market Cap, EPS, Share Price, and

Please solve and show Please solve and show work for the following 4 questions. Please calculate the Enterprise Value, Market Cap, EPS, Share Price, and P/E Multiple for each of the questions. Please dont re answer the question if you already answered it before in Chegg.
1. The following four questions concern a hypothetical public company, ABC Corp. ABC is expected to earn net income (equal to free cash flow) of $1bn in the next twelve months (NTM). Its stock trades at a P/E multiple of 20x (NTM). ABC has 1bn shares outstanding, zero gross debt and $5bn of excess cash (not used in operations). Calculate the following financial metrics for ABC Corp:
1. Enterprise Value
2. Market cap
3. EPS (NTM)
4. Share price
5. P/E multiple (NTM)
2. Assume that ABC Corp makes a new $2bn capital investment Assume that the capital investment is funded with excess cash (earning 0%) and is expected to increase the Companys free cash flow (equal to net income) by $100mm in the next twelve months, growing thereafter at 2% per annum in perpetuity. The $2bn will be invested fully at the beginning of the NTM period. Assume that the market value of the company will immediately adjust to reflect the expected intrinsic value of the capital investment. Calculate the following financial metrics for ABC Corp, assuming a 6% cost of capital:
6. Enterprise value
7. Market cap
8. EPS (NTM)
9. Share price
10. P/E multiple (NTM)
3. Assume that in lieu of the capital investment, ABC had decided to make a one-time dividend payment of $2bn funded with excess cash (earning 0%), paid at the beginning of the NTM period. Assume there has been no change to the outlook for the operating earnings, operating cash flow or associated risks of ABC following the dividend payment. Calculate each of the following pro forma financial metrics for ABC:
11. Enterprise value
12. Market cap
13. EPS (NTM)
14. Share price
15. P/E multiple (NTM)
4. Assume that in lieu of the capital investment and the dividend payment, ABC had decided to make a one-time share buyback of $2bn, funded with excess cash (earning 0%). Assume that the shares are to be repurchased at the beginning of the period at a price equal to their market price prior to announcement of the transaction (from Q5 above). Assume there has been no change to the outlook for the operating earnings, operating cash flow or associated risks of the company following

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Airline Finance

Authors: Peter S. Morrell

4th Edition

1351959743, 978-1351959742

More Books

Students also viewed these Finance questions