Question

Depreciation https://myuni.adelaide.edu.au/courses/32822/quizzes/30541 5/10 10/27/2018 Test1: Corporate Investment & Strategy III Question 9 1 / 1 pts California Real Estate, Inc., expects to earn $65 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $12 million today and $4 million in one year in real estate. The new investment will generate annual earnings of $10 million in perpetuity, beginning two years from today. The firm has 10 million shares of common stock outstanding, and the required rate of return on the stock is 10 percent. Land investments are not depreciable. Ignore taxes. What is the per-share stock price if the firm undertakes the investment? 72.53 65.00 87.63 76.35 71.34 expense was $1,783m and Capital Expenditure was $2,135.7m. Phoenix paid a dividend of $1,823.4m. What was the Levered Free Cash Flow after the dividend?Phoenix Corporation for fiscal 2015 had Total Cash Flow from Operations of $6,917.2m, which was after interest expense of $926m. Depreciation
https://myuni.adelaide.edu.au/courses/32822/quizzes/30541
5/10
10/27/2018 Test1: Corporate Investment & Strategy III
Question 9
1 / 1 pts
California Real Estate, Inc., expects to earn $65 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $12 million today and $4 million in one year in real estate. The new investment will generate annual earnings of $10 million in perpetuity, beginning two years from today. The firm has 10 million shares of common stock outstanding, and the required rate of return on the stock is 10 percent. Land investments are not depreciable. Ignore taxes. What is the per-share stock price if the firm undertakes the investment?
72.53 65.00 87.63 76.35 71.34

expense was $1,783m and Capital Expenditure was $2,135.7m. Phoenix paid a dividend of $1,823.4m. What was the Levered Free Cash Flow after the dividend?

Answer 1

Answer:

Question 1

Levered Free Cash Flow after dividend $2,958.1

Question 2.

2a.$65

2b.$75,272,727.27

2c.$72.53

Step-by-step explanation:

QUESTION 1

Calculation for the Levered Free Cash Flow after the dividend

Using this formula

Levered Free Cash Flow after dividend =Cash Flow from Operations-(Capital Expenditure+ Dividend amount)

Let plug in the formula

Levered Free Cash Flow after dividend =$6,917.2m-( $2,135.7m+$1,823.4m)

Levered Free Cash Flow after dividend =$6,917.2m-$3,959.1m

Levered Free Cash Flow after dividend =$2,958.1

Therefore the Levered Free Cash Flow after dividend will be $2,958.1

QUESTION 2

2a. Calculation for the price of a share of stock in a situation where the firm does not undertake the new investment

The first step will be to find the Cash value of the company using this formula

Cash value of company =Amount expect to earn in perpetuity/Return on stock percentage

Let plug in the formula

Cash value of company = $65,000,000 / .10

Cash value of company = $650,000,000

Now let find the share price using this formula

Share price=Cash value of company/Shares of common stock outstanding

Let plug in the formula

Share price = $650,000,000 / $10,000,000

Share price = $65

b. Calculation for the value of the investment

First step is to find the Net present value of the growth opportunities (NPVGO ) using this formula

NPVGO = C0+ C1/ (1 +R) + (C2/R) / (1 +R)

Let plug in the formula

NPVGO = −$12,000,000 − 4,000,000 / (1 + .10) + ($10,000,000 / .10) / (1 + .10)

NPVGO =$75,272,727.27

c. Calculation for the per-share stock price if the firm undertakes the investment

The first step is to find the NPVGO per share using this formula

NPVGO per share =NPVGO/Shares of common stock outstanding

Let plug in the formula

NPVGO per share= $75,272,727.27 / $10,000,000

NPVGO per share = $7.53

Now let calculate for the per-share stock price using this formula

Per share stock price = Cash value price + NPVGO per share

Per share stock price = $65 + $7.53

Per share stock price=$72.53