Kollmorgen Corporation, a diversified technology company, reported sales of $194.9 million in 1992,...

Question

Kollmorgen Corporation, a diversified technology company, reported sales of $194.9 million in 1992, and had a net loss of $1.9 million in that year. Its net income had traced a fairly volatile course over the previous five years: The stock had a beta of 1.20, and the normalized net income was expected to increase 6% a year until 1996, after which the growth rate was expected to stabilize at 5% a year (the beta will drop to XXXXXXXXXXThe depreciation amounted to $8 million in 1992, and capital spending amounted to $10 million in that year. Both items were expected to grow 5% a year in the long term. The firm expected to maintain a debt ratio of 35%. (The Treasury bond rate was 7%, and the risk premium is 5.5%.) a. Assuming that the average earnings from 1987 to 1992 represents the normalized earnings, estimate the normalized earnings and free cash flow to equity. b. Estimate the value per share.

Komalavalli · Accepted Answer

a
	year	net income
	1987	300000
	1988	11500000
	1989	2400000
	1990	7200000
	1991	4600000
	1992	4876000
	Normalized earnings	5146000
	1992
	Depriciation	1333333.33333333
	capital expenditure	1666666.

Kollmorgen Corporation, a diversified technology company, reported sales of $194.9 million in 1992, and had a net loss of $1.9 million in that year. Its net income had traced a fairly volatile course...

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