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Question P5.3
0.10
rITS = rUA
$0 0.10 10.00 $0.00
vITS = ITS/rUA
Value of Firm $30,000.00
Given the structure of the company, the capital structure ratios should not vary too much
over time because the value and the financing of the company should be growing all
proportionally.
Question P5.4
Question P6.1
QUESTION P6.2
b.
Y0 Y1 Y2 Y3 Y4 Y5 CVFirm
$4,850
QUESTION P6.3
a.
60% 20% 10% 5% 5% 3%
Y0 Y1 Y2 Y3 Y4 Y5 CVFirm
$554
QUESTION P6.4
Discount Rate = 9%
g2 AAer Year 10
-3% 0% 3%
g1(through Year N)
5% 1.4% 2.4% 3.8%
QUESTION P6.5
QUESTION P6.6
FCF1 = $187
FCF2 = $707
FCF3 = -$773
FCF4 = $1,227
Value of Firm as of Year 0 = $3,940
FIN 623 - Yu Feng 2/16/2018!
QUESTION P7.1
Balance Sheet
Cash $0 $0 $0
Receivable $0 $2,420 $0
Inventory (T-Shirts) $1,500 $0 $0
Total Assets $1,500 $2,420 $0
DF 90.91% 82.64%
$700 -$200
Total Present Value = 700-200 = $500
Discounted Value = PV + Investment = 500 + 1500 = $2,000
FIN 623 - Yu Feng 2/16/2018!
QUESTION P7.2
Cash 0 0 0
Receivable 0 $2,420 0
Inventory $1,500 $0.00 $0.00
Intangible Assets $200 $0.00 $0.00
Total Assets $1,700 $2,420.00 $0.00
DF 90.91% 82.64%
$591 -$291
Total Present Value = 591-291 = 300
Discounted Value = PV + Investment = 300 + 1700 = $2,000
FIN 623 - Yu Feng 2/16/2018!
QUESTION P7.3
Year 0 Year 1 Year 2 Year 3 Year 4
Required Unlevered Net Income for Year $2,182 $2,422 $2,501 $2,564
b.
Net Income to Common Equity for Year $2,708 $3,006 $3,048 $3,222