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In: Finance

Year 0 1 2 3 4 FCF ($ million) -30 25 25 25 25 FCF for...

Year

0

1

2

3

4

FCF ($ million)

-30

25

25

25

25

FCF for firm Canyon Shopping Center (CSC) is listed in the table above. After year 4 FCF is expected to grow at a constant rate of 2%. The weighted average cost of capital for CSC is 7%. If cash = $10 million, the market value of ASC’s debt = $35 million, and the number of shares outstanding is 5 million, estimate the share price.

Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma, and round to one decimal places. E.g., if your answer is $7,001.56, should type ONLY the number 7001.6, NEITHER 7,001.6, $7001.6, $7,001.6, NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.

Solutions

Expert Solution

Working Note:
Present Value of Cash flows in Year 4 if they are growing at Constant Rate,
PV4 = FCF4 (1+g) / (Ke - g)
PV4 = $ 25 (1+0.02) / (0.07 - 0.02)
PV4 = $ 510 Million
A a Year FCF (in Million) PVF@ 7 % PV of FCF
0 $                   (30) 1 $              (30)
1 $                     25 0.9346 $                23
2 $                     25 0.8734 $                22
3 $                     25 0.8163 $                20
4 $                     25 0.7629 $                19
4 $                   510 0.7629 $              389
PV of FCF $              444
Present Value of Assets $ 444 Million
B Market Value of Debt $ 35 Million
C Market Vale of CSC = A - B $ 444 Million - $ 35 Million
Market Vale of CSC = $ 409 Million
D Number of shares outstanding = 5 million
E Share Price = C/D
Share Price = $ 409 Million / 5 Million
Share Price = 81.8

jeff jeffy answered 1 year ago
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