assume that you have an opportunity to buy the stock of CoolTech,
Inc. an IPO for $8.70 per share. although you are very much
interested in owning a company you are concerned about whether it
is fairly priced. to determine the value of the shares do you have
decided to apply the free cash flow valuation model to the firms
financial data that you've accumulated from a variety of data
sources the key values you have complied are summarized in the
following table.
2020 $750,000 growth rate of FCF beyond 2023 to infinity
=3%
2021 $840,000 weighted average cost of capital=13%
2022 $970,000 market value of all debt =1,950,000
2023 1,120,000 market value of preferred stock =780,000
Number of shares of common stock to be issued=1,100,000
a. Use the free cash flow valuation model to estimate
CoolTechs common stock value per share
b. judging by your findings and party and the stocks offering
price should you buy the stock
c. on further analysis you find out the growth rate in FCF
will he 4% rather than 3%.. what effect would this finding have on
your response in parts a&b?