Question 1

Palm & Sun's (PS) free cash flows are expected to be $200 million next year and $488 million two years from now. After that, free cash flows are expected to grow at a constant rate of 3% per year forever. P&S’s WACC is 11%, its cost of equity is 14% and its cost of debt is 9.5%. They have $400 million of debt and $78 million in cash on their balance sheet. Use the discounted cash flow model to find P&S’s current equity value (rounded to the nearest million dollars).
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5676 margin of error +/- 2 Question 2

Swamp & Sand Industries has the following data. The discount rate is 12%. Terminal value is 3 times FCF. Cash and debt are constant. Calculate its Enterprise Value. | 20X1 | 20X2 | 20X3 | Free Cash Flow | 1933 | 1933 | 1933 | Cash | 147 | 147 | 147 | Debt | 435 | 435 | 435 |
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8762.3 margin of error +/- 3
Enterprise Value is the discounted value of FCF and Terminal Value. At 12% 3 yrs, the PVA1 = 2.4 At 12% 3 yrs, the DF = .71
So FCF *2.4 + TV*.71 = Enterprise Value.
To find the PVA1 (the present value of a $1 annuity): 1=P/YR 3=N 12=I/YR 1=PMT 0=FV PV=2.4 To find the discount factor: 1=P/YR 3=N 12=I/YR 0=PMT 1=FV PV=.71 Question 3

An analyst is valuing Palm and Sun Industries for a possible acquisition. The buyer wants cash flows evaluated for 20 years a terminal value $50 M. Ignore taxes.
Annual cash flow from continuing operations $ 1115 M.
Annual cash flow from product line expansion $239 M.
Annual cash flow from tax savings $ 40 M. Use these discount rates.
Cost of Equity 15%
Cost of Debt 6%

Calculate the APV.
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8938 margin of error +/- 5 Question 4

Given the following data from Swamp & Sand Industries, calculate the FCF. The tax rate is 30%. Sales | 10754 |