Question

Discounted Cash Flow Valuation
Presented below are data for Boso Audio:

	Forecast Year
	1	2	3	4	5	Terminal
No. of outstanding shares	500	500	500	500	500	500
Terminal year growth rate						4%
Cost of common equity	9%	9%	9%	9%	9%	9%
Net income	$79	$94	$111	$130	$150	$157
Beginning of year common equity	$649	$683	$720	$758	$797	$839
Free cash flow to common equity	$44	$58	$73	$90	$108	$115

Compute the value of a share of Boso common stock using the discounted cash flow method.

Do not round your computations until your final answer. Round final answer to two decimal places.

Answer 1

	Forecast Year
	1	2	3	4	5	Terminal
No. of outstanding shares	500	500	500	500	500	500
Terminal year growth rate						4%
Cost of common equity	9%	9%	9%	9%	9%	9%
Net income	$79	$94	$111	$130	$150	$157
Beginning of year common equity	$649	$683	$720	$758	$797	$839
Free cash flow to common equity	$44	$58	$73	$90	$108	$115
Terminal Cash Flow						$2,300
PV of cash Flows	$40.37	$48.82	$56.37	$63.76	$70.19
PV of terminal cash Flows						$1,494.84
Value of total Equity of the Firm	$1,774.35
Value of a share	$3.55

Formula used in excel calculation: