Assume that you have an opportunity to buy the stock of CoolTech, Inc. an IPO being...

Assume that you have an opportunity to buy the stock of CoolTech, Inc. an IPO being offered $2.87 per share although you are very much interested in owning the company you are concerned about whether it is fairly priced. to determine the value of the shares you have decided to apply the free cash flow valuation model to the firms financial data that you accumulated from a variety of data resources. The key values you have complied are summariezed in the following table.

Year FCF other data

2020 660,000 growth rate of FCF, beyond 2023 to infinity =4%

2021 770,000 weighted average cost of capital =14%

2022 900,000 market vakue of all debt=1,730,000

2023 1,020,000 market value of preferred stock=690,000

Number of common stocks 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 finding in part a and the stocks offering price, should you buy the stock?

c. on further analysis, You find that the growth rate FCF beyond 2023 will be 5% rather than 4%. what effect would this finding have on your responses in part a and b?

Expert Solution

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jeff jeffy answered 2 years ago

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