ORIGINAL PROJECT
Question 1
ITech Geek is a publicly traded technology company and has 5,000,000 shares outstanding. Their marginal tax rate of 30%. Assume ITech Geek plows-back 60% of its net income into retained earnings.
First, create the necessary Balance Sheets and Income Statement and then calculate the annual Cash Flow from Assets for ITech Geek. A constraint here, however, is that your CFFA must range between $20,000,000 and $24,000,000 annually.
Second, assuming ITech Geek’s annualized WACC is 8% and its annualized CFFA are growing at 5%, you are to estimate the current value of ITech Geek.
Question 2
ITech Geek is not familiar with the mechanics of corporate bond valuation. They are interested in the fact that bond prices converge to their PAR value as the date to maturity nears. Explain this concept to ITech Geek management.
