Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Union Pacific Railroad reported net income of Ghc770 million after interest expenses of Ghc320 million in a recent financial year (The corporate tax rate was

Union Pacific Railroad reported net income of Ghc770 million after interest expenses of Ghc320 million in a recent financial year (The corporate tax rate was 36%). It reported depreciation of $960 million in that year, and capital spending was Ghc1.2 billion. The firm also had Ghc4 billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8%), and was trading at par (up from Ghc3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at Ghc60 per share), with a book value of Ghc5 billion. Union Pacific paid 40% of its earnings as dividends and working capital requirements are negligible. (The Treasury bond rate is 7%). You can assume a market risk premium of 5.5%.

a. Estimate the Free Cash Flow to the Firm for the most recent financial year. (5 marks)

b. Estimate the value of the firm now. (5 marks)

c. Estimate the value of equity and the value per share now

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_2

Step: 3

blur-text-image_3

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

Fundamentals Of Futures And Options Markets

Authors: Jonn C. Hull

8th International Edition

0133382850, 9780133382853

More Books

Students also viewed these Finance questions

Question

Summarize various training methods.

Answered: 1 week ago

Question

Explain the metrics for evaluating training and development.

Answered: 1 week ago

Question

Identify career planning approaches.

Answered: 1 week ago