Ask Experts Questions for FREE Help !
Ask
    chatterjeer's Avatar
    chatterjeer Posts: 1, Reputation: 1
    New Member
     
    #1

    Apr 1, 2015, 06:04 PM
    Can someone help me with this Corporate Finance problem?
    You are a mutual fund manager. You are interested in company FAB. Company FAB is an all equity company with 1M shares outstanding. Your research indicates that FAB has a CAPM asset beta of 2. You think that the expected free cash flow of FAB will be $10M in year 1 and will grow at 5% thereafter. FAB stocks are currently trading at $73 per share. FAB pays out all its FCF as dividends. FAB does not have any cash. The risk free rate is 4% and the market risk premium is 7%. Ignore taxes or transaction costs.
    a) What is the fair price of FAB shares in year 0?
    b) What will be the fair price of FAB shares in year 1?
    You expect that FAB shares will be trading at the fair price in year 1. You purchase 10,000 shares of FAB today and hold it for a year.
    c) What is your expected return from year 0 to year 1?
    d) What is the cost of capital of your portfolio? What is the CAPM alpha of your portfolio?
    e) What is the NPV of your portfolio in year 0?
    J_9's Avatar
    J_9 Posts: 40,298, Reputation: 5646
    Expert
     
    #2

    Apr 1, 2015, 06:06 PM
    What have you come up with so far? We are willing to help you, but we can't do it for you?

Not your question? Ask your question View similar questions

 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

Finance Homework corporate finance [ 0 Answers ]

The Everly Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $10,000 per year. If the machine is not replaced, it can be sold for $10,000 at the...

Corporate Finance TVM problem [ 0 Answers ]

You want to buy a car 5 years from now, and you can save $3,100 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 8.5% per year. Under these condisitons, how much will you have just after you make the 5th deposit, 5 years from now.

Corporate finance [ 1 Answers ]

What is the current yield of a bond with a 6% coupon, four years until maturity, and a price of $750.00?

Corporate Finance [ 1 Answers ]

Crabtree, Inc. has an operating cash flow of $164,900, depreciation expense of $93,100, and taxes paid of $80,400. A partial listing of its balance sheet accounts is as follows: Beginning Balance Ending Balance Current assets 131,700 119,600 Net fixed assets 712,500 689,200 Current...


View more questions Search