A) Cathey Corporation currently has sales of $1,200, which are expected to grow by 10% from...

A) Cathey Corporation currently has sales of $1,200, which are expected to grow by 10% from Year 0 to Year 1 and by 4% from Year 1 to Year 2. The company currently has an operating profitability ratio (OP) of 7% and a capital requirement ratio (CR) of 50% and expects to maintain these ratios at their current levels. The current level of total net operating capital (OpCap) is $550. Use these inputs to forecast free cash flow (FCF) for Years 1 and 2.

B) Cathey Corporation has a 12% weighted average cost of capital. Cathey’s free cash flows, estimated in the previous question, are expected to grow at 4% beginning at Year 2 and thereafter. What is the horizon value (use Year 2 for the horizon)? What is the current value of operations?

C) Cathey Corporation has $80 in short-term investments, $20 in short-term debt, $140 in long-term debt, $30 in preferred stock, and 10 shares of common stock outstanding. Use the value of operations from the previous question to estimate the intrinsic common stock price per share.

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jeff jeffy answered 1 year ago

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