All Related Questions of Terminal Value

Q: Happy Times, Inc., wants to expand its party stores into

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Par...

Q: Eberhart Manufacturing has projected sales of $145 million next year.

Eberhart Manufacturing has projected sales of $145 million next year. Costs are expected to be $81 million and net investment is expected to be $15 million. Each of these values is expected to grow at...

Q: The fair value hierarchy establishes three levels of input, with level

The fair value hierarchy establishes three levels of input, with level one being the best type, because it uses the most objective inputs, and level three using the most subjective inputs. Instruction...

Q: Answer the following questions about the discounted free cash flow model illustrated

Answer the following questions about the discounted free cash flow model illustrated in Figure 12-4: a. What are “free cash flows?” b. Explain the terminal value calculation at the end of the forecast...

Q: Using the market data in Exhibit 7.6, show the

Using the market data in Exhibit 7.6, show the net terminal value of a long position inone 100 Aug Japanese yen European call contract at the following terminal spot prices,cents per yen: 91, 95, 100,...

Q: Using the market data in Exhibit 7.6, show the

Using the market data in Exhibit 7.6, show the net terminal value of a long position inone 100 Aug Japanese yen European put contract at the following terminal spot prices,cents per yen: 91, 95, 100,...

Q: Suppose that in the case application in the chapter the APV for

Suppose that in the case application in the chapter the APV for Centralia had been2$60,000. How large would the after-tax terminal value of the project need to bebefore the APV would be positive and C...

Q: RxDelivery Systems is an R&D venture specializing in the development

RxDelivery Systems is an R&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the 1990s. Dr...

Q: RxDelivery Systems is an R&D venture specializing in the development

RxDelivery Systems is an R&D venture specializing in the development and testing of new drug delivery technologies. The market for alternative drug delivery systems grew rapidly during the past sever...

Q: Wok Yow Imports, Inc., is a rapidly growing, closely

Wok Yow Imports, Inc., is a rapidly growing, closely held corporation that imports and sells oriental style furniture and accessories at several retail outlets. The equity owners are considering sell...

Q: Why do net income and cash flow in the numerical examples in

Why do net income and cash flow in the numerical examples in this chapter both grow at the same rate (g) in the terminal value period? Why is this important?

Q: What would you need if you wanted to conduct an enterprise valuation

What would you need if you wanted to conduct an enterprise valuation for a hypothetical Round D for Fuel3D? Discuss the relationship between Fuel3D and MakerBot. How might it affect the terminal value...

Q: Refer to the FrothySlope microbrewery example. A. How does

Refer to the FrothySlope microbrewery example. A. How does the $500,000 piece of the terminal value relate to the future value of the $100,000? That is, the brewpub investor was looking for a 40% ret...

Q: Ratchets.com anticipates that it will need $15,000

Ratchets.com anticipates that it will need $15,000,000 in venture capital to achieve a terminal value of $300,000,000 in five years. A. Assuming it is a seed stage firm with no existing investors, w...

Q: The SoftTec Products Company is a successful small, rapidly growing,

The SoftTec Products Company is a successful small, rapidly growing, closely held corporation. The equity owners are considering selling the firm to an outside buyer and want to estimate the value of...

Q: What are the common ways to estimate a terminal value for a

What are the common ways to estimate a terminal value for a venture?

Q: A venture investor wants to estimate the value of a venture.

A venture investor wants to estimate the value of a venture. The venture is not expected to produce any free cash flows until the end of year 6 when the cash flow is estimated at $2,000,000 and is ex...

Q: The Gamma Systems Manufacturing Corporation has reached its maturity stage and its

The Gamma Systems Manufacturing Corporation has reached its maturity stage and its net sales are expected to grow at a 6 percent compound rate for the foreseeable future. Management believes that as...

Q: New information for the Gamma Systems Manufacturing Corporation has been brought to

New information for the Gamma Systems Manufacturing Corporation has been brought to the management’s attention. Use the financial statement information in Problem 5 and take into consideration that s...

Q: Saina Supplies leases and sells materials, tools, and equipment and

Saina Supplies leases and sells materials, tools, and equipment and also provides add-on services such as ground maintenance and waterproofing to construction and mining sites. The company has grown r...

Q: Describe the terminal value of the following portfolio: a newly entered

Describe the terminal value of the following portfolio: a newly entered-into long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the f...

Q: Happy Times, Inc., wants to expand its party stores into

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Par...

Q: Fincher Manufacturing has projected sales of $135 million next year.

Fincher Manufacturing has projected sales of $135 million next year. Costs are expected to be $76 million and net investment is expected to be $15 million. Each of these values is expected to grow at...

Q: Gemco Jewelers earned $5 million in after-tax operating income

Gemco Jewelers earned $5 million in after-tax operating income in the most recent year. The firm also had capital expenditures of $4 million and depreciation of $2 million during the year, and the non...

Q: Given Ms. Nguyen’s estimate of Country Point’s terminal value in 2014

Given Ms. Nguyen’s estimate of Country Point’s terminal value in 2014, what is the growth assumption she must have used for free cash flow after 2014? a. 7 percent b. 9 percent c. 3 percent

Q: An employee contributes $15,000 to a 401(k

An employee contributes $15,000 to a 401(k) plan each year, and the company matches 10 percent of this annually, or $1,500. The employee can allocate the contributions among equities (earn...

Q: Like many married couples, Damian and Brandi Woodson are trying their

Like many married couples, Damian and Brandi Woodson are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a r...

Q: Use Worksheet 11.1 Alison Conroy is a young career woman

Use Worksheet 11.1 Alison Conroy is a young career woman who’s now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the pe...

Q: Firm DFG plans to open a foreign subsidiary through which to sell

Firm DFG plans to open a foreign subsidiary through which to sell its manufactured goods in the European market. It must decide between locating the subsidiary in Country X or Country Z. If the subsid...

Q: In the previous problem, instead of a perpetual growth rate

In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Ye...

Q: Wells Printing is considering the purchase of a new printing press.

Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $2.2 million. This outlay would be partially offset by the sale of an existing press. The o...

Q: 1. How is MIRR computed? a. By finding

1. How is MIRR computed? a. By finding the discount rate that equates the present value of the cash outflows with the terminal value of the cash inflows of a capital budgeting project b. By finding th...

Q: 1. What is the profitability index (PI)? a

1. What is the profitability index (PI)? a. The benefit/cost ratio of a capital budgeting project, in present value terms. b. The benefit/cost ratio of a capital budgeting project, in future value ter...

Q: Lattig Corp. had a $2.0 million cash flow

Lattig Corp. had a $2.0 million cash flow last year, and projects that figure to increase by $200,000 per year for the next five years (to $3.0 million). After that, Lattig expects an annual growth r...

Q: In the last problem, assume that the cash flow from the

In the last problem, assume that the cash flow from the Downhill acquisition grows at 10% from its initial value for one year and then grows at 5% indefinitely (starting in the third year). Calculate...

Q: Oxbow Inc. is contemplating a new venture project and has done

Oxbow Inc. is contemplating a new venture project and has done a detailed five-year cash flow estimate with the following result ($000): The firm’s cost of capital is 12%. a. Use a...

Q: The Paxton Homes Co. is a successful builder of moderate to

The Paxton Homes Co. is a successful builder of moderate to high-priced houses. The firm is currently considering an expansion into light commercial construction in which it would build shopping cent...

Q: Wildcat Welders manufactures new and repairs old irrigation sprinkler systems in Western

Wildcat Welders manufactures new and repairs old irrigation sprinkler systems in Western Australia. The entity has been plagued with industrial accidents involving its old welding technology. A new (s...

Q: Forecasting the terminal value of equipment 20 years from now is difficult

Forecasting the terminal value of equipment 20 years from now is difficult to do accurately, but errors in estimation probably have a small effect on the NPV. Explain.

Q: Overnight Laundry is considering the purchase of a new pressing machine that

Overnight Laundry is considering the purchase of a new pressing machine that would cost $96 000 and produce incremental operating cash flows of $25 000 annually for 10 years. The machine has a termina...

Q: In the previous problem, instead of a perpetual growth rate in

In the previous problem, instead of a perpetual growth rate in adjusted cash flow from assets, you decide to calculate the terminal value of the company with the price-sales ratio. You believe that Ye...

Q: Gamma Systems Manufacturing Corporation has reached its maturity stage, and its

Gamma Systems Manufacturing Corporation has reached its maturity stage, and its net sales are expected to grow at a 6 percent compound rate for the foreseeable future. Management believes that, as a m...

Q: New information for Gamma Systems Manufacturing Corporation has been brought to management’s

New information for Gamma Systems Manufacturing Corporation has been brought to management’s attention. Use the financial statement information in Problem 5 and take into consideration that sales will...

Q: The SoftTec Products Company is a successful, small, rapidly growing

The SoftTec Products Company is a successful, small, rapidly growing, closely held corporation. The equity owners are considering selling the firm to an outside buyer and want to estimate the value of...

Q: Wok Yow Imports, Inc., is a rapidly growing, closely

Wok Yow Imports, Inc., is a rapidly growing, closely held corporation that imports and sells Asian style furniture and accessories at several retail outlets. The equity owners are considering selling...

Q: A project requires an initial investment of $60,000.

A project requires an initial investment of $60,000. It will generate an annual profit of $12,000 for eight years and have a terminal value of $10,000. Calculate the project’s IRR. Should it be accept...

Q: Explain why each of the following statements is generally incorrect:

Explain why each of the following statements is generally incorrect: a. “Price-earnings ratios should increase when the yield on government securities rises.” b. “A company’s discounted cash-flow valu...

Q: The Brankton Company, a US firm, considers investing in Spain

The Brankton Company, a US firm, considers investing in Spain. The investment will cost €125 million and is expected to generate, after taxes, €30 million a year during the next five years in real ter...