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Exam 11: Corporate Valuation

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Question 1

True/False

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important issues in corporate governance are (1) the rules that cover the board's ability to fire the CEO and (2)the rules that cover the CEO's ability to remove members of the board.

A) True
B) False

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Question 2

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poison pill is also known as a corporate restructuring.

A) True
B) False

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Question 3

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value of Broadway-Brooks Inc.'s operations is $900 million, based on the corporate valuation model Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity If the company has 25 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Which of the following does NOT always increase a company's market value?

a company's expected return on invested capital is less than its cost of equity, then the company must also have a negative market value added (MVA).

ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.

Kinkead Incforecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million After Year 2, FCF is expected to grow at a constant rate of 4% forever If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

Based on the corporate valuation model, the value of Weidner Co.'s operations is $1,200 million The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity If Weidner has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?

free cash flows (in millions) shown below are forecast by Simmons IncIf the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

Young & Liu Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?

Which of the following statements is NOT CORRECT?

corporate valuation model cannot be used unless a company doesn't pay dividends.

Reynolds Construction's value of operations is $750 million based on the corporate valuation model Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital) , and $160 million of retained earnings What is the best estimate for the firm's value of equity, in millions?

Value-based management focuses on sales growth, profitability, capital requirements, the weighted average cost of capital, and the dividend growth rate.

cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

free cash flows (in millions) shown below are forecast by Parker & Sons If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments) .

projected cash flow for the next year for Minesuah Incis $100,000, and FCF is expected to grow at a constant rate of 6% If the company's weighted average cost of capital is 11%, what is the value of its operations?

Heath and Logan Incforecasts the free cash flows (in millions) shown below The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3 Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?

CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options If D'Amico's stock underperforms the market, these options will necessarily be worthless.