Utilizing the free cash flow(FCF)approach and the information stated below please calculate the value of a...

Utilizing the free cash flow(FCF)approach and the information stated below

please calculate the value of a Lincroft Music’s common stock:

•Market value of senior debt = $68,500,000

•Market value of junior debt = $39,500,000

•Shares of common stock outstanding = 2,000,000

•Growth rate of 15% for 3 years, followed by a 7.5% annual growth rate, thereafter

•Estimated WACC (discount rate) of 10%

•Last year's FCF = $4,200,000

Solutions

Expert Solution

- FCF last year (FCF0) = $4200,000

Growth rate for first 3years(g) = 15%

Growth rate therafter (g1) = 7.5%

WACC= 10%

Calculating the Value of Firm:-

Value of Firm = 4390,909.09 + 4590,495.87 + 4799,154.77 + 206,363,655.145

Value of Firm = $ 220,144,214.876

Value of Firm = Value of Equity + Value of Debt

$ 220,144,214.876 = Value of Equity + ($68,500,000 + $39,500,000)

Value of Equity = $ 112,144,214.876

No of shares outstanding = 2,000,000

Value of Share per stock = $ 112,144,214.876/2000,000

= $ 56.07

So, the value of a Lincroft Music’s common stock is $56.07 per share

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jeff jeffy answered 1 year ago

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