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.

Expert Solution

jeff jeffy answered 1 year ago

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