Fourth Graded Assignment Total Points 81 The fourth graded assignment has two problems. The first is about calculating the value of second addresses calculation of WACC. The number of points for each question is on the answer the questions in sequence using this workbook. Note that there are two worksheets the worksheets for answers, but you may have to add rows or formatting to accommodate for calculation but you should show your calculations if you would like to receive partial cre number of variables. Be complete; but, concise with your analysis. If you wish to elaborate adjacent rows. The assignment is due by class time on April 7. Please submit your answe individual effort. bout calculating the value of stock using the FCF model from chapter seven. The s for each question is on the respective worksheet; total points are 81. Please hat there are two worksheets, one for each problem. There are spaces provided on formatting to accommodate your answers. You may choose to use Excel functions uld like to receive partial credit. The point count for questions is based on the ysis. If you wish to elaborate on your calculations for the ratios, please do so in 7. Please submit your answers on Blackboard. This graded assignment is an You may have to add rows or formatting to provide enough space to answer each question receive partial credit. Leave Columns L - O for feedback Your employer, a mid-sized human resources management company, is considering expa including the acquisition of Temp Force Company, an employment agency that supplies w and computer programmers to businesss with temporary heavy workloads. Your employer purchase of a Biggerstaff and Biggerstaff (B&B), a privately held company owned by two b million shares of stock. B&B currently has free cash flow of $24 million, which is expected of 5%. B&B's financial statements report marketable securities of $100 million, debt of $20 stock of $50 million. B&B's WACC is 11%. Answer the following questions. Show your calc to recieve partial credit. i. What is free cash flow (FCF)? What is the weighted average cost of capital? What is th model? e. 1. Use B&B’s data and the free cash flow valuation model to answer the following quest estimated value of operations? e. 2. What is its estimated total corporate value? e. 3. What is its estimated intrinsic value of equity? e. 4. What is its estimated intrinsic stock price per share? l. 1. You have just learned that B&B has undertaken a major expansion that will change its to −$10 million in 1 year, $20 million in 2 years, and $35 million in 3 years. After 3 years, fr a rate of 5%. No new debt or preferred stock were added, the investment was financed by Assume the WACC is unchanged at 11% and that there are still 10 million shares of stock horizon value (i.e., its value of operations at year three)? What is its current value of opera l. 2. What is its value of equity on a price per share basis? m. Compare and contrast the free cash flow valuation model and the dividend growth mod ace to answer each question. Show calculations to Points Total ompany, is considering expansion into related fields, ment agency that supplies word processing operators y workloads. Your employer is also considering the eld company owned by two brothers, each with 5 4 million, which is expected to grow at a constant rate s of $100 million, debt of $200 million, and preferred ng questions. Show your calculations, as appropriate, 27 e cost of capital? What is the free cash flow valuation 4 o answer the following questions. What is its 3 2 xpansion that will change its expected free cash flows n in 3 years. After 3 years, free cash flow will grow at investment was financed by equity from the owners. ill 10 million shares of stock outstanding. What is its at is its current value of operations (i.e., at time zero)? 10 5 nd the dividend growth model. 3 Total 27 You may have to add rows or formatting to provide enough space to answer each question receive partial credit. Leave Columns L - O for feedback What are the typical sources of capital that should be included in estimating weighted aver (WACC)? Should these sources be evaluated at market or book value? Explain your answer. Granby Foods' (GF) balance sheet shows a total of $25 million long-term debt with a coup yield to maturity on this debt is 8.00%, and the debt has a total current market value of $27 has 10 million shares of stock, and the stock has a book value per share of $5.00. The cur per share, and stockholders' required rate of return, rs, is 12.25%. The company recently d capital structure should have 35% debt, with the balance being common equity. The tax ra WACCs based on book, market, and target capital structures. Which would you use to eva of stock? 85 You have been hired by the CFO of Lugones Industries to help estimate its cost of commo obtained the following data: (1) rd = yield on the firm's bonds = 7.00% and the risk premium 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.25. (3) D1 = $1.20, P0 = $35.00, and g were asked to estimate the cost of common based on the three most commonly used meth the difference between the highest and lowest of these estimates. What is that difference? 88 ace to answer each question. Show calculations to Points Total in estimating weighted average cost of capital Explain your answer. 4 3 n long-term debt with a coupon rate of 8.50%. The l current market value of $27 million. The company per share of $5.00. The current stock price is $20.00 5%. The company recently decided that its target g common equity. The tax rate is 40%. Calculate Which would you use to evaluate the price of a share 33 54 p estimate its cost of common equity. You have = 7.00% and the risk premium over its own debt cost = = $1.20, P0 = $35.00, and g = 8.00% (constant). You e most commonly used methods and then to indicate tes. What is that difference? 14 Total 54