## Question 1. Valuing Early Stage

a. Estimate Mindy Ltd’s terminal value based on the following information:

Current year’s net income = \$20,000; next year’s expected cash flow = \$26,000;

Constant future growth rate = 7%; Venture investors’ required rate of return = 20%.

b. In a wildly successful first year at Sachin Inc. that started and ended with no required cash, the firm has:

Operating income of \$989,000, net income of \$637,000;

Change in current assets of \$900,000, change in current liabilities of \$659,000; Net capital expenditures were \$690,000, and depreciation was \$460,000.

The firm has never financed itself with debt. What is its equity valuation cash flow?

c. Estimate Darien Ltd’s equity valuation cash flow based on the following information:

Net income = \$6,372; Depreciation = \$4,600;

Change in net operating working capital =\$2,415;  Capital expenditures = \$6,900; and  New debt issues = \$1,000.

Question 2 Operating and Financial Performance

Russo’s company, Petrol Distribution Ltd, holds a portfolio of three assets. It wishes to invest 50 percent of his money in asset A with 10 percent rate of return, 30 percent in asset B with a rate of return of 20 percent, and the rest in asset C with 30 percent rate of return. The share portfolio also has a beta coefficient of 0.5.

1. Find the expected rate of return for the portfolio.
2. Assuming the risk-free rate of 6 percent and the market return of 12 percent, compute the required rate of return.
3. Assuming a risk-free rate of 8 percent and a market return of 12 percent, would a wise investor acquire a security with a beta of 1.5 and a rate of return of 14 percent given the facts above

Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).

After making payment, solution is available instantly.Solution is available either in Word or Excel format unless otherwise specified.