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Chap 3 - Test

TOY, Inc. is a toy manufacturing company with a current market value of $56.00 per share and various financial metrics provided for Year 0. The company is considering a buyout offer of $450 million and evaluating its stock's valuation in relation to its fair value. Future cash flows are projected to grow by 5% annually, and the document includes calculations for free cash flow to equity and firm value.

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15 views1 page

Chap 3 - Test

TOY, Inc. is a toy manufacturing company with a current market value of $56.00 per share and various financial metrics provided for Year 0. The company is considering a buyout offer of $450 million and evaluating its stock's valuation in relation to its fair value. Future cash flows are projected to grow by 5% annually, and the document includes calculations for free cash flow to equity and firm value.

Uploaded by

Son Tran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

TOY, Inc. is a company that manufactures dolls, games, and other items to entertain A) $50.86.

children. B) $64.71.
The following table provides background information for TOY, Inc. on a per share basis in C) $61.57.
the year 0:

Current Information Year 0

Earnings $5.00
Question #24 - 25 of 137 Question ID: 1473079
Capital Expenditures $2.40
Comparing the current market value of TOY to our estimate of the stock's current market
Depreciation $1.80
value, it is most likely that at the current market price of $56.00, TOY Inc. stock is:
Change in Working Capital $1.70
A) overvalued.
Cost of equity 12.0% B) undervalued.
Target debt ratio 30.0% C) fairly valued.

Market value of stock $56.00

Shares outstanding 5.0 million

Interest expense $7.2 million


Question #25 - 25 of 137 Question ID: 1473080
Cash & short-term investments $40.0 million
Senior management of TOY Inc. is considering selling the company to a rival firm that has
Tax rate 37.5%
offered $450 million. If the current market price represents the fair value of equity and TOY
Inc. maintains its target capital structure, the bid represents a price that is:
Earnings, capital expenditures, depreciation, and working capital are all expected to grow by
5.0% per year in the future. A) less than the total value of the firm.

Net borrowing = DRx(WCInv + FCInv - Dep) B) about the same total value of the firm.
C) greater than the total value of the firm.
Question #22 - 25 of 137 Question ID: 1473077

In year 1, the forecasted free cash flow to equity (FCFE) for TOY, Inc. is closest to:

A) $3.56.
FCFE = NI + dep - wcinv - fcinv + net borrowing
B) $4.31. Question #26 of 137 Question ID: 1472963
FCFE = NI + (1-DR)(Dep - WCInv - FCInv)
C) $4.53. Free cash flow to the firm (FCFF) adjusts earnings before interest and taxes (EBIT) by:

deducting taxes, adding back depreciation, and deducting the investments in fixed
A)
capital and working capital.
B) subtracting investments in fixed capital and working capital.
Question #23 - 25 of 137 Question ID: 1473078
adding taxes, deducting depreciation, and adding back the investments in fixed
C)
The value of TOY, Inc.'s stock given the above assumptions, is closest to: capital and working capital.

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