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Equity Market Capitalization Business Questionnaire case study
Equity Market Capitalization Business Questionnaire case study
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Equity Market Capitalization Business Questionnaire case study
- Company A has 2000 shares outstanding and current stock price is $300/share. Accordingly, company A’s balance sheet is as follows (in market value).
Surplus cash $150,000 Debt $0
Fixed assets and net working capital $450,000 Equity market capitalization $600,000
Equity Market Capitalization Business Questionnaire case study
$600,000 $600,000
A shareholder holds one share of the stock. Now, company A decides to payout the surplus cash (only for the current period). (only put numbers, no comma or $ sign)
(a). If company A decides to payout all the surplus cash as dividends, what’s the new equity market capitalization of the company on the balance sheet? $
Equity Market Capitalization Business Questionnaire case study
What’s the new stock price per share? $ /share
Equity Market Capitalization Business Questionnaire case study
How much can the shareholder receive as dividend/share? $ /share
\Equity Market Capitalization Business Questionnaire case study
What’s shareholder’s wealth (per share) in the current period including both cash income and value of the stock held by the shareholder? $ /share
Equity Market Capitalization Business Questionnaire case study
(b). If company A decides to payout all the surplus cash as share repurchase, how many shares can it repurchase? shares
Equity Market Capitalization Business Questionnaire case study
What’s the number of shares outstanding now? shares
Equity Market Capitalization Business Questionnaire case study
What’s the new equity market capitalization of the company on the balance sheet? $
Equity Market Capitalization Business Questionnaire case study
What’s shareholder’s wealth in the current period including both cash income and value of the stock held by the shareholder? Assume the shareholder still holds one share of the stock. $ /share
Equity Market Capitalization Business Questionnaire case study
Equity Market Capitalization Business Questionnaire case study
- The market-value balance sheet and other financial data for Company XXX are listed below.
Asset value $1,000,000 Debt $400,000
Equity $600,000
$1,000,000 $1,000,000
Cost of debt 6%
Cost of equity 12%
Marginal tax rate 21%
You are the financial manager of company XXX is considering a project that requires $310,000 investment today and expects to generate a perpetual cash flow of $30,000 each year (after-tax). This after-tax cash flow takes no account of interest tax shields on debt supported by the project. Assume no depreciation. The company issues $80,000 debt at 6% interest rate to finance the project and will keep the debt amount fixed once issued. The issuing cost is 4000. You want to calculate APV of the project. Please show all your work to get full credit (keep four decimals including percentage to avoid rounding error).
(a). What’s cost of capital used to calculate base-case NPV (in %)?
(b). What’s base-case NPV?
(d). What’s PV of interest tax shields?
(e). What’s the APV of the project considering both PV of interest tax shield and issuing cost?
- You are the financial manager of a company with market value of debt $300,000 and equity $700,000. The cost of debt is 5% for your company and cost of equity is 11%. Your company is tempted to acquire Company Z. You want to estimate the value of Company Z. The following table sets out the information that you need to forecast company Z’s free cash flows (the highlighted numbers are all forecasted numbers). You can assume the cash flow in year 0 has already occurred when you calculate the value of the business. Value horizon is 2 years. From year 3 onward, you assume a long-term growth rate of 3.5% each year. Company Z has a debt ratio (D/V) of 20% and will keep the debt ratio constant. Assume the cost of debt for company Z is also 5%. Marginal tax rates for both companies are 21%.
0
1
2
3
Sales
170,000
171,000
172,000
176,000
Cost of goods sold
136,000
136,700
137,500
138,300
Net working capital
100,000
103,800
108,200
112,350
Depreciation
7,000
7,000
7,000
7,000
Gross fixed assets
160,000
175,000
188,000
202,000
Investment in fixed assets
(change in gross fixed assets)
13,000
Investment in working capital
4,000
You will use “adjust discount rate” approach to calculate the value of Company Z (keep four decimals). Show are your inputs to get full credit. Please don’t attach your work in excel here, I won’t grade it.
(a). What’s the discount rate you will use to discount the free cash flow given that Company Z’s debt ratio is different from your company? [9 points]
(b). Forecast Company Z’s after-tax profit over the next 3 years. Show your work to derive the after-tax profit in year 2 (don’t need to show after-tax profit in year 1 and 3)? [5 points]
(c). Calculate free cash flows over the next 3 years. Specifically, what’s the free cash flow in year 2 (don’t need to show your work to drive free cash flow in year 1 and 3)? [7 points]
(d). What’s the present value of horizon value? [7 points]
(e). What’s the present value of the firm? [6 points]
Equity Market Capitalization Business Questionnaire case study
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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