A company generated free cash flow of $57 million during the past year. Free cash flow is expected to increase 5% over the next year and then at a stable 2.9% rate in perpetuity thereafter

A company generated free cash flow of $57 million during the past year. Free cash flow is expected to increase 5% over the next year and then at a stable 2.9% rate in perpetuity thereafter. The company's cost of capital is 8.1%. The company has $434 million in debt, $39 million of cash, and 39 million shares outstanding. What's the value of each share?

		a. 4.8
		b. 8.3
		c. 5.6
		d. 17.8
		e. 19.4

Expert Solution

The value is computed as follows:

= Free cash flow next year / (1 + cost of capital) + 1 / (1 + cost of capital) x [ (Free cash flow next year x (1 + growth rate) / (cost of capital - growth rate) ]

= ($ 57 million x 1.05) / 1.081 + 1 / 1.081 x [ ($ 57 million x 1.05 x 1.029) / (0.081 - 0.029) ]

= $ 59.85 million / 1.081 + $ 1,184.339423 million / 1.081

= $ 1,244.189423 million / 1.081

= $ 1,150.961538 million

So, the per share value will be:

= (Value computed above - debt + cash) / Number of shares outstanding

= ($ 1,150.961538 million - $ 434 million + $ 39 million) / 39 million shares

= $ 755.9615385 million / 39 million shares

= $ 19.4 Approximately

jeff jeffy answered 2 years ago

A company generated free cash flow of $43 million during thepast year. Free cash flow...

A company generated free cash flow of $43 million during the past year. Free cash flow is expected to increase 6% over the next year and then at a stable 2.8% rate in perpetuity thereafter. The company's cost of capital is 11.2%. The company has $330 million in debt, $20 million of cash, and 28 million shares outstanding. What's the value of each share?

A company’s free cash flow next year is expected to be -$11.2 million, $3.6 million the...

A company’s free cash flow next year is expected to be -$11.2 million, $3.6 million the following year, and $6.2 million in the third year. Thereafter, the free cash flow is expected to grow forever at a rate of 4.8% per year. The company’s weighted average cost of capital is 11.1% per year and the market value of its debt is $35.2 million. If the company has four million shares of common stock outstanding, what is the value per share?...

A firm is expected to have free cash flow of $881 million next year. The firm...

A firm is expected to have free cash flow of $881 million next year. The firm has $1 billion of outstanding debt and no preferred stock. The WACC is 7% and FCF is expected to grow at 1% indefinitely. If the firm has 91 million shares outstanding, what is the expected value of the firm's stock price? If a portfolio holds three stocks in equal amounts, and the betas of the three stocks are 0.8, 1.4, and 1.4, what is...

A firm is expected to have free cash flow of $782 million next year. The firm...

A firm is expected to have free cash flow of $782 million next year. The firm has $1 billion of outstanding debt and no preferred stock. The WACC is 10% and FCF is expected to grow at 1% indefinitely. If the firm has 104 million shares outstanding, what is the expected value of the firm's stock price?

Scampini Technologies is expected to generate $200 million in free cash flow next year, and FCF...

Scampini Technologies is expected to generate $200 million in free cash flow next year, and FCF is expected to grow at a constant rate of 6% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 11%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. Each share of common stock is worth $ , according to the...

Scampini Technologies is expected to generate $50 million in free cash flow next year, and FCF...

Scampini Technologies is expected to generate $50 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 15%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent.

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF...

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 15%. If Scampini has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. Each share of common stock is worth $ , according to the...

A company is projected to have a free cash flow of $346 million next year, growing...

A company is projected to have a free cash flow of $346 million next year, growing at a 6% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.3% in perpetuity. The company's cost of capital is 9.4%. The company owes $92 million to lenders and has $16 million in cash. If it has 196 million shares outstanding, what is your estimate for its stock price? Round to one...

A company is projected to have a free cash flow of $429 million next year, growing...

A company is projected to have a free cash flow of $429 million next year, growing at a 4.7% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.6%. The company's cost of capital is 10.8%. The company owes $114 million to lenders and has $10 million in cash. If it has 264 million shares outstanding, what is your estimate for its stock price? Round to one decimal place.

company is projected to have a free cash flow of $314 million next year, growing at...

company is projected to have a free cash flow of $314 million next year, growing at a 4.9% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.3%. The company's cost of capital is 10.6%. The company owes $107 million to lenders and has $11 million in cash. If it has 257 million shares outstanding, what is your estimate for its stock price? Round to one decimal place.

Question