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Question 1. TERMINAL VALUE REFERS TO THE VALUAT...

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Question 1. TERMINAL VALUE REFERS TO THE VALUATION ATTACHED TO THE END OF THE PLANNING PERIOD AND THAT CAPTURES THE VALUE OF ALL SUBSEQUENT CASH FLOWS. ESTIMATE THE VALUE TODAY FOR EACH OF THE FOLLOWING SETS OF FUTURE CASH FLOW FORECASTS : A. CLAYMORE MINING COMPANY ANTICIPATES THAT IT WILL EARN FIRM FREE CASH FLOWS FCFs OF 4 MILLION PER YEARS FOR EACH OF THE NEXT FIVE YEARS. MOREOVER, BEGINING IN YEAR 6, THE FIRM WILL EARN FCF OF 5 MILLION PER YEAR FOR THE INDEFINITE FUTURE. IF CLAYMORE?S COST OF CAPITAL IS 10%, WHAT IS THE VALUE OF THE FIRM?S FUTURE CASH FLOWS ? B. SHAMELESS COMMERCE INC. HAS NO OUTSTANDING DEBT AND IS BEING EVALUATED AS A POSSIBLE ACQUISITION. SHAMELESS?S FCFs FOR THE NEXT YEARS ARE PROJECTED TO BE 1 MILLION PER YEAR, AND, BEGINNING IN YEAR 6, THE CASH FLOWS ARE EXPECTED TO BEGIN GROWING AT THE ANTICIPATED RATE OF INFLATION WHICH IS CURRENTLY 3% PER ANNUM. IF THE COST OF CAPITAL FOR SHAMELESS IS 10%, WHAT IS YOUR ESTIMATE OF THE PRESENT VALUE OF THE FCFs ? C. DUSTIN ELECTRIC INC. IS ABOUT TO BE ACQUIRED BY THE FIRM?S MANAGEMENT FROM THE FIRM?S FOUNDER FOR 15 MILLION IN CASH. THE PURCHASE PRICE WILL BE FINANCED WITH 10 MILLIOM IN NOTES THAT ARE TO BE REPAID IN 2 MILLION INCREMENTS OVER THE NEXT FIVE YEARS. AT THE END OF THIS FIVE YEAR PERIOD. THE FIRM WILL HAVE NO REMAINING DEBT. THE FCFS ARE EXPECTED TO BE 3 MILLION A YEAR FOR THE NEXT FIVE YEARS. BEGINING IN YEAR 6, THE FCFS ARE EXPECTED TO GROW AT A RATE FO 2% PER YEAR INTO THE INDEFINITE FUTURE. IF THE UNLEVERED COST OF EQUITY FOR DUSTIN IS APPROXIMATELY 15% AND THE FIRM?S BORROWING RATE ON THE BUYOUT DEBT IS 10% (BEFORE TAXES AT A RATE OF 10%), WHAT IS YOUR ESTIATE OF THE VALUE OF THE FIRM ? Question 2. Conceptual analysis of real options: Highland properties owns two adjacent four-unit apartment buildings that are both on 20,000 square feet of land near downtown Portland, Oregon. One of the properties is in very good condition, and the apartments can be rented or $2,000 per month. The units in the other property require some refurbishing and in their current condition can be rented for only about $1,500 per month. Recent zoning changes, combined with changes in market demand, suggest that both lots can be redeveloped. If they are redeveloped, the existing units would be torn down and new luxury apartment buildings would be built on the site, each with 10 apartment units. The cost of the 10-unit buildings is estimated to be about $1.5 million, and each of the 10-apartment unit can be rented for 2,500 per month under current market conditions. Similar properties that have been refurbished are selling for 10 times their annual rentals. a. Identify the real option(s) in this example. b. What are the basic elements of the option(s) (i.e., the underlying asset on which the option is based, the expiration date, and the exercise price)? c. Estimate the value of the option to develop the property. (Hint: make any assumptions you must to arrive at an estimate.),Yyes,I want to decrease the price up to 20$ ?,please let me know as soon as soon as possible because assignment due tonight thanks,Hello can you Do only problem 1for 40$ but the due date is Friday the 13 10pm plz let me Question 1. TERMINAL VALUE REFERS TO THE VALUATION ATTACHED TO THE END OF THE PLANNING PERIOD AND THAT CAPTURES THE VALUE OF ALL SUBSEQUENT CASH FLOWS. ESTIMATE THE VALUE TODAY FOR EACH OF THE FOLLOWING SETS OF FUTURE CASH FLOW FORECASTS : A. CLAYMORE MINING COMPANY ANTICIPATES THAT IT WILL EARN FIRM FREE CASH FLOWS FCFs OF 4 MILLION PER YEARS FOR EACH OF THE NEXT FIVE YEARS. MOREOVER, BEGINING IN YEAR 6, THE FIRM WILL EARN FCF OF 5 MILLION PER YEAR FOR THE INDEFINITE FUTURE. IF CLAYMORE?S COST OF CAPITAL IS 10%, WHAT IS THE VALUE OF THE FIRM?S FUTURE CASH FLOWS ? B. SHAMELESS COMMERCE INC. HAS NO OUTSTANDING DEBT AND IS BEING EVALUATED AS A POSSIBLE ACQUISITION. SHAMELESS?S FCFs FOR THE NEXT YEARS ARE PROJECTED TO BE 1 MILLION PER YEAR, AND, BEGINNING IN YEAR 6, THE CASH FLOWS ARE EXPECTED TO BEGIN GROWING AT THE ANTICIPATED RATE OF INFLATION WHICH IS CURRENTLY 3% PER ANNUM. IF THE COST OF CAPITAL FOR SHAMELESS IS 10%, WHAT IS YOUR ESTIMATE OF THE PRESENT VALUE OF THE FCFs ? C. DUSTIN ELECTRIC INC. IS ABOUT TO BE ACQUIRED BY THE FIRM?S MANAGEMENT FROM THE FIRM?S FOUNDER FOR 15 MILLION IN CASH. THE PURCHASE PRICE WILL BE FINANCED WITH 10 MILLIOM IN NOTES THAT ARE TO BE REPAID IN 2 MILLION INCREMENTS OVER THE NEXT FIVE YEARS. AT THE END OF THIS FIVE YEAR PERIOD. THE FIRM WILL HAVE NO REMAINING DEBT. THE FCFS ARE EXPECTED TO BE 3 MILLION A YEAR FOR THE NEXT FIVE YEARS. BEGINING IN YEAR 6, THE FCFS ARE EXPECTED TO GROW AT A RATE FO 2% PER YEAR INTO THE INDEFINITE FUTURE. IF THE UNLEVERED COST OF EQUITY FOR DUSTIN IS APPROXIMATELY 15% AND THE FIRM?S BORROWING RATE ON THE BUYOUT DEBT IS 10% (BEFORE TAXES AT A RATE OF 10%), WHAT IS YOUR ESTIATE OF THE VALUE OF THE FIRM ?

 

Paper#5546 | Written in 18-Jul-2015

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