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    Discounted Cash Flow Valuation Exercise

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    Julia Nicole
    1. The bond's current market price is P880. 2. A) The stock's value is P100. B) The new market value is P83.33. 3. The stock's current value per share is P3.57. 4. A) 5 years. B) P25. B) P21.25. 5. A) 12%. B) P555,556. C) P111,111. 6. A) P252 million. B) P232 million. C) P23.20 per share.

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    Discounted Cash Flow Valuation Exercise

    Uploaded by

    Julia Nicole
    124 views2 pages
    1. The bond's current market price is P880. 2. A) The stock's value is P100. B) The new market value is P83.33. 3. The stock's current value per share is P3.57. 4. A) 5 years. B) P25. B) P21.25. 5. A) 12%. B) P555,556. C) P111,111. 6. A) P252 million. B) P232 million. C) P23.20 per share.

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    Under valuation methods

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    1. The bond's current market price is P880. 2. A) The stock's value is P100. B) The new market value is P83.33. 3. The stock's current value per share is P3.57. 4. A) 5 years. B) P25. B) P21.25. 5. A) 12%. B) P555,556. C) P111,111. 6. A) P252 million. B) P232 million. C) P23.20 per share.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    124 views2 pages

    Discounted Cash Flow Valuation Exercise

    Uploaded by

    Julia Nicole
    1. The bond's current market price is P880. 2. A) The stock's value is P100. B) The new market value is P83.33. 3. The stock's current value per share is P3.57. 4. A) 5 years. B) P25. B) P21.25. 5. A) 12%. B) P555,556. C) P111,111. 6. A) P252 million. B) P232 million. C) P23.20 per share.

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    © All Rights Reserved
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    Discounted Cash Flow Valuation

    1. Callaghan Motors bonds have 10 years remaining to maturity. Interest is paid annually,
    they have a P1,000 par value, the coupon interest rate is 8%, and the yield to maturity is 9%.
    What is the bond’s current market price?

    2. Ezzell Corporation issued perpetual preferred stock with a 10% annual dividend. The stock
    currently yields 8% and its par value is P100.
    A. What is the stock’s value?
    B. Suppose interest rates rise and pull the preferred stock’s yield up to 12%. What is its
    new market value?

    3. Thomas Brothers is expected to pay a P0.50 per share dividend at the end of the year. The
    dividend is expected to grow at a constant rate of 7% a year. The required rate of return on
    the stock, rs, is 15%. What is the stock’s current value per share?

    4. Hart Enterprises recently paid a dividend of P1.25. It expects to have a nonconstant growth
    of 20% for 2 years followed by a constant rate of 5% thereafter. The equity’s required rate of
    return is 10%.
    A. How far away is the horizon date?
    B. What is the stock’s Horizon, or continuing value, value?
    C. What is the stock’s intrinsic value today?
    5. TransWorld Communications Inc., a large telecom company is evaluating the possible
    acquisition of Georgia Cable Company (GCC), a regional cable co. TransWorld’s analysts
    projects the following post-merger data for GCC (in thousands):
    0 1 2 3 4
    Net sales P450 P518 P555 P600
    Selling and administrative expenses 45 53 60 68
    Interest 18 21 24 27
    Tax rate after merger 35% Risk-free rate 8%
    Cost of goods sold ratio 65% Market risk premium 4%
    Beta after merger 1.50 Continuing growth rate 7%

    If the acquisition is made, it will occur on January 1, year 1. All cash flows shown in the
    income statements are assumed to occur at the end of the year. GCC currently has a capital
    structure of 40% debt, but Trans World would increase that to 50% if the acquisition were
    made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 35%
    if it were consolidated. GCC’s current market determined beta is 1.40, and its investment
    bankers think that is beta would rise to 1.50 if the debt ratio were increased to 50%. The
    cost of goods sold is expected to be 65% of sales but is could vary somewhat. Depreciation-
    generated funds would be used to replace worn-out equipment, so they would not be
    available to TransWorld shareholders. The risk-free rate is 8%, and the market risk
    premium is 4%.
    A. What is the appropriate discount rate for valuing the acquisition?
    B. What is the continuing value?
    C. What is the value of GCC to TransWorld?

    6. Dozier Corporation is a fast-growing supplier of office products. Analysts project the


    following free cash flows (FCFs) to the firm during the next three years, after which FCF is
    expected to grow at a constant rate of 7%. Dozier’s WACC is 13%.
    Year 0 1 2 3
    FCF (millions) -P20 P30 P40

    A. What is Dozier’s Horizon, or terminal value?


    B. What is the firm’s value today?
    C. Suppose Dozier has P100 million of debt and 10,000,000 shares of stock outstanding.
    What is your estimate of the current price of the share?

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