Problems: Refer to Luther Income Statement and Balance Sheet on pages 13 and 14
ID: 2383650 • Letter: P
Question
Problems:
Refer to Luther Income Statement and Balance Sheet on pages 13 and 14 for the next question.
1. If on December 31, 2008, Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's enterprise value?
Use the table for question #2 below.
Project
Cash flow today
Cash flow
in one year
"alpha"
-18
23
"beta"
15
-12
"gamma"
15
-20
"delta"
-16
21
2. Assume that the risk-free interest rate is 10%. Rank each of the four projects from most desirable to least desirable based upon NPV. Which project would you invest in first? Are there any projects that you wouldn't invest in?
Project
Cash flow today
Cash flow
in one year
"alpha"
-18
23
"beta"
15
-12
"gamma"
15
-20
"delta"
-16
21
Explanation / Answer
Q1 No of shares 8,000,000.00 Price per share 15.00 Luther Enterprice Value = 8,000,000*15 = 120,000,000.00 Q2 Project Cash flow today or PV today (a) Cash flow in one year(b) PVf for Year 1(1/1.10)© PV of First Year(Cash flow *PVF)(d= b*c) NPV = a + d Ranking comments "alpha" (18.00) 23.00 0.9091 20.91 2.91 3.00 "beta" 15.00 (12.00) 0.9091 (10.91) 4.09 1.00 Invest in Beta First "gamma" 15.00 (20.00) 0.9091 (18.18) (3.18) Wont invest in Gamma since negative NPV "delta" (16.00) 21.00 0.9091 19.09 3.09 2.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.