The earnings, dividends and stock price for Luna Enterprises…
The earnings, dividends and stock price for Luna Enterprises are expected to grow at 7% per year into the future. Luna’s common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year. The firm’s beta is 1.6, the risk-free rate is 9%, and the expected return on the market is 13%. What is the firm’s cost of equity by (a) the discounted cash-flow method, and (b) by the CAPM method.
Read DetailsA firm has a declining gross profit margin with slow but pos…
A firm has a declining gross profit margin with slow but positive revenue growth, their EBITDA margin is stable. The company operates in a fiercely competitive industry that is mature. What is the likely cause of this scenario?
Read DetailsYou’ve just done some analysis on a publicly traded company…
You’ve just done some analysis on a publicly traded company and some of your key findings are below. The company; Operates in a highly innovative and high growth industry which is expected to continue for the next 5 years before the industry matures The company is an industry leader with some of the best metrics relative to peers Has an ROE of 25% Operates in a world where long term GDP is approximately 4% Does not pay a dividend Given these considerations, what is the most appropriate sustainable growth rate (terminal value growth rate) to use for this company?
Read DetailsA company has a dividend payout ratio of 35%. The most recen…
A company has a dividend payout ratio of 35%. The most recent free cash flow was $2.15. Assuming free cash flows are expected to grow at 20% for the next 3 years before dropping to a long-term growth rate, what is the overall value of the firm? The discount rate for the firm is 15%.
Read DetailsA firm’s CFO wants to estimate the firm’s WACC, and has comp…
A firm’s CFO wants to estimate the firm’s WACC, and has compiled the following information below. The firm uses CAPM to estimate the cost of equity, and does not account for any kind of floatation costs in the calculation of the cost of capital. What is the firm’s WACC? Capital structure 45% equity Bonds outstanding yield 7.75% Real-risk free rate 3% Market risk premium 7% Beta 1.2 Tax rate 30%
Read DetailsUse the following information for questions 18 through 20…
Use the following information for questions 18 through 20 Supplemental Info Gross Margin 65% Tax Rate 35% Balance Sheet (in millions) Total Assets 475 Shareholders Equity 250 Income Statement (in millions) Sales 175 EBITDA 75 EBIT 60 EBT 58
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