Gemco Jewelers earned $ 5 million in after-tax operating income in the most recent year....
80.2K
Verified Solution
Link Copied!
Question
Accounting
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 noncash working capital at the end of the year was $10 million.
a. Assuming that the firms operating income will grow 20% next year and that all other items (capital expenditures, depreciation and noncash working capital) will grow at the same rate, estimate the free cash flow to firm next year.
b. If the firm can grow at 20% for the next five years, estimate the present value of the free cash flows to firm over that period. You can assume cost of capital of 12%.
c. After year 5, the firms capital expenditures will decline to 125% of depreciation and the growth rate will drop to 5% (in both operating income and non cash working capital) In addition, the cost of capital will decline to 10%. Estimate the terminal value of the firm at the end of year 5.
d. If Gemco Jewelers has $10 million in cash and that the firm has $15 million in outstanding debt:
Estimate the value of equity in the firm
Value of equity per share, if it has 5 million shares outstanding.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
