Larry is instructed by his employer Huge Ltd,

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Larry is instructed by his employer Huge Ltd, to register a company which is to sell educational assistance to commerce students. Larry is to become Managing Director of the new company. Before the new company (Lifesaver Pty Ltd) is registered, Larry signs a purchase agreement on behalf of the proposed company to buy educational equipment.Lifesaver Pty Ltd is later registered and at its first directors’ meeting the ratification of Larry’s purchase is considered. The other directors consider the equipment Larry purchased is unsuitable and refuse to approve the transaction.REQUIRED:(a) How does corporate law classify the role undertaken by Larry leading up to the registration of Lifesaver Pty Ltd? What are the duties that such a person owes and to whom are they owed?(b) What is the effect on Larry, and on Lifesaver Pty Ltd, if the directors decide not to ratify Larry’s lease.

 

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Does the company already have equipment and staff in place were purchasing additional software might be the best direction?

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• Your Company Web Server Hardware & Software For this assignment you will look at the web server hardware and software needs for your proposed company. I am not looking for make, models and detailed specification but rather how may customers will be accessing the server, is there going to be online purchases and payments, etc. Write up a one to two page summary of the needs. Some of the topics you should cover will include: • Will the company website be self-hosting or pay a service provider to host? The answer to this question could depend of company size, volume of transactions, etc. • Does the company already have equipment and staff in place were purchasing additional software might be the best direction? • What type of operating system, connection speed and user capacity are needed to support your proposal? For example, if your company were involved in online gaming the needs would be different from a company with an online catalog purchasing system. • What key elements will be the software need to support such as catalogs, shopping carts, and transaction processing capabilities? Will there be blogs, file transfers, etc? • What are the database needs such as for purchasing, inventory, customer information, etc.?

 

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Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.

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This homework submission should include all calculations, completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading the assigned chapters, address the following questions:

Turbo Technology Computers is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next two years, at 13% in the third year, and at a constant rate of 6% thereafter. Turbo’s last dividend was $1.15, and the required rate of return on the stock is 12%.

Complete the following calculations:

Calculate the value of the stock today.
Calculate P1^ and P2^.
Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.
Kassidy’s Kabob House has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? Assume the market is in equilibrium with the required return equal to the expected return.
McCaffrey’s Inc. has never paid a dividend, and when the firm might begin paying dividends is not known. Its current free cash flow (FCF) is $100,000, and this FCF is expected to grow at a constant 7% rate. The weighted average cost of capital (WACC) is 11%. McCaffrey’s currently holds $325,000 of non-operating marketable securities. Its long-term debt is $1,000,000, but it has never issued preferred stock. McCaffrey’s has 50,000 shares of stock outstanding.

Calculate the following:

McCaffrey’s value of operations
The company’s total value
The estimated value of common equity
The estimated per-share stock price

 

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Estimate the value of equity, by discounting the cash flows to equity at the cost of equity.

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Exercise 1 You have been asked to value a firm with expected annual after-tax cash flows, before debt payments, of $100 million a year in perpetuity. The firm has a cost of equity of 10%, a market value of equity of $750 million and a market value of debt of $500 million (this is also the book value). The debt is perpetual and the after-tax interest rate on debt is 5%. The company has no non-operating activities.

a. Estimate the value of the firm and the value of the equity based upon this value.

b. Estimate the value of equity, by discounting the cash flows to equity at the cost of equity.

c. Now assume that you had been told that the market value of equity was $850 million and that all of the other information remained unchanged. Answer parts a and b, using these new values.

d. In practice, what needs to happen for the two valuation approaches (FCFF and FCFE) to give the same estimate of value?

Exercise 2 a. Using the financial statements and other information that you have for MPR, and assuming a 5% perpetual growth rate in the FCFE, value the equity using the FCFE method.

b. Does this value equal the estimated value using the FCFF method? Why or why not?

Exercise 3 IO Taxes Inc. is a large but privately-held all-equity firm in the tax planning industry. The firm has been enjoying a nice 20% annual growth in its FCFE due to the highly anticipated increase in taxes related to the massive baby-boomers retirement wave. IO’s FCFE is expected to be $5 million next year. The growth rate is expected to be the same for an additional year after that and then management expects the FCFE’s growth rate to cool down to 4% in perpetuity.

IO Taxes has 10 million shares outstanding and it has $10 million in non-operating cash (invested mostly in Treasury bills).

While IO Taxes is not publicly traded, its close competitor, H&R Rock Inc., is and has an unlevered and unadjusted equity beta of 1.3.

Additional market information:

Market risk premium: 5.2%

T-bond yield: 2.25%

a. Based on the available information, please estimate IO’s cost of equity.

b. Estimate the intrinsic value of each share of stock.

 

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