Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Problem 4) (18 points) UNR corp. is planning to go public and it faces the problem of setting an appropriate price for the stock. As
Problem 4) (18 points) UNR corp. is planning to go public and it faces the problem of setting an appropriate price for the stock. As a financial analyst you are going to estimate an IPO price for the firm. You are given the following information about the firm. The firm recently reported $28.000 of sales, $8,000 of operating costs other than depreciation, and $1.200 of depreciation and amortization charges. It has $8,250 of outstanding bonds that carry a 8% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $4,500 to buy new fixed assets and to invest $1,750 in net operating working capital. a. How much free cash flow did the firm generate? b. An analyst estimates that the FCF should grow rapidly at a rate of 10% per year during years 1, 2 and 3; but after year 3, growth should be a constant 6% per year. Using free cash flow valuation model estimate the UNR corp's intrinsic per share price (IV.-?). UNR corp's current debt is $15,000. short-term investment is $6,800, preferred stock is $5,300, and number of shares outstanding is 4,500. Assume UNR'S WACC is 14%. C. Assume that the form decides your calculations in part b are correct and sets IPO price equal to your estimated intrinsic per share price in part (b) (eg.. IPO price your result in Part b). Given investment bank spread is 6%, what is the proceed under-writer gives to the company? Assume the firm issued all shares outstanding (4,500 shares) on the IPO date
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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