Question
Use the following to answer the next four (5) questions American Wheels is considering purchasing Canadian Tyre Inc. American Wheels, a high-end auto parts retailer,
Use the following to answer the next four (5) questions
American Wheels is considering purchasing Canadian Tyre Inc. American Wheels, a high-end auto parts retailer, has been provided with the following information for Canadian Tyre:
Earnings before interest and tax (EBIT): $6,500,000
Interest Payments: $500,000
Depreciation and Amortization Expense: $350,000
Decrease in Net Working Capital: $200,000
Capital Expenditures: $150,000
Corporate Tax Rate: 35%
Number of Shares Outstanding: 2,000,000
Beta:1.1250
The Market Risk Premium: 6%
The Risk-Free Rate: 4%
Assuming the Free Cash Flows to the equityholders (FCFE) will be stable for the foreseeable future and using the above information and forecasts, determine the following:
Q1.
What are the Free Cash Flows to the firm (FCFF)?
$3,900,000
$4,225,000
$4,300,000
$4,625,000
Q2.
What are the Free Cash Flows to the EquityHolders?
$3,900,000
$4,225,000
$4,300,000
$4,625,000
Q3.
What is the Cost of equity using the Capital Asset Pricing Model (CAPM)?
6.25%
10.35%
10.75%
12.50%
Q4.
What is the Total Value of Equity?
$37,681,159
$40,000,000
$62,400,000
$68,800,000
Q5.
What is the Price per Share?
$18.84
$20.00
$31.20
$34.40
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