Assignment
1. Lemmon has EAT, depreciation expense, capital expenses and debt principal payments of $4m, $.2m, $.3m, and $.5m respectively. Additionally, it has sales of $40 million, debt of $60 million and equity of $40 million. Between the first and the second years, it has current assets of $11m and $11.4mand current debts of $5m and $5.1m respectively. Its unlevered beta, D/E and t are .7, 60/40 and .25 respectively. The coe is 12 %. Lemmon plows about 30% of its profits back into its business. Derive the value of Lemmon.
2. The value of book equity is $100 million. The debt is $40 million. Analysts believe that if the firm need ed to sell its assets quickly, it would lose 65% of their value. Also, they estimate that the increase in the price of assets is about 25% more than the book value. If the firm has 1 million shares, how much are the liquidation value, book value and replacement value per share?
3. The market capitalization and debt of a public firm are $500 million and $1500 million respectively. The firm has $50 and $150 million of minority interest and preferred stock respectively. Moreover, it has a cash position of $450 million. Explicate how a hedge fund which feels there is value in this company, can orchestrate a takeover, if it estimates it has to pay a 5% premium for the company's stock. What will the statement of financial position look like before and after the acquisition?
4. Pabon has a P/E of 10 and a dividend of $2 per share. It has 2 m shares outstanding and $80 m of book value of equity, as well as $160 million of debt. Pabon expects to sell $20m worth of sales and have EAT of $5m and keep 40% of its profit. Furthermore, it has $240m of assets. Its tax rate is .3, and its unlevered bheta is 1.The 10 year t bond rate is 3% while the ROR in the S&P has been 13 %. Calculate Pabon's price, if we assume that its growth rate is constant.
5. There is a firm which reinvests its profits back in itself. Consequently, it does not distribute any of its profit to the owners for the first 5 years. Afterward, it begins paying $6 per share for the sixth year. That rises by 200% for the 7th year and by 100% for the 8th. Beyond the 8th year, it grows perpetually at a constant rate. Its dividend payout ratio is .6, Its D/E is 50/50, its tax rate is .2, and its unlevered beta is 1. The net profit margin is .05. The asset turnover ratio is 2. The market premium is .04 and the risk free rate is .02. If the information for the last three sentences is applying to year 9, compute the price of the company.