Question

In: Finance

11. More on the corporate valuation model Allied Biscuit Co. is expected to generate a free...

11. More on the corporate valuation model

Allied Biscuit Co. is expected to generate a free cash flow (FCF) of $6,070.00 million this year (FCF1FCF1 = $6,070.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF2FCF2 and FCF3FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF4FCF4). If Allied Biscuit Co.’s weighted average cost of capital (WACC) is 6.30%, what is the current total firm value of Allied Biscuit Co.?

$231,867.54 million

$193,222.95 million

$228,217.04 million

$19,258.94 million

Allied Biscuit Co.’s debt has a market value of $144,917 million, and Allied Biscuit Co. has no preferred stock. If Allied Biscuit Co. has 750 million shares of common stock outstanding, what is Allied Biscuit Co.’s estimated intrinsic value per share of common stock?

$64.41

$193.22

$70.85

$63.41

Solutions

Expert Solution

Q-11)

Expected free cash flow this year (FCF1) = $6070 million

Growth rate of FCF in next 2 years is (g) = 19%

Growth rate of FCF therafter from year 4(g1) = 2.10%

WACC = 6.30%

Calculating the Enterprise value(EV) or total firm value of Allied Biscuit Co:-

EV = $5710.254 + $6392.476 + 7156.206 + $173,963.955

EV = $193,222.89 millions

So, total firm value of Allied Biscuit Co is $193,222.95 millions

Option 2 (Difference in answer in decimals due to rounding off)

Enterprise Value = Market Value of equity + Market Value of Debt

$193,222.95 million = Market Value of equity + $144,917 million

Market Value of equity = $48,305.95 million

Intrinsic value per share = Market Value of equity/No of shares outstanding

= $48,305.95 million/750 million

Intrinsic value per share = $64.41 per share

Option 1

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

11. More on the corporate valuation model Globo-Chem Co. is expected to generate a free cash...

11. More on the corporate valuation model Globo-Chem Co. is expected to generate a free cash flow (FCF) of $8,030.00 million this year (FCF₁ = $8,030.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Globo-Chem...

11. More on the corporate valuation model 123 Warehousing is expected to generate a free cash...

11. More on the corporate valuation model 123 Warehousing is expected to generate a free cash flow (FCF) of $990.00 million this year (FCF₁ = $990.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If 123...

2. Corporate valuation model Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow...

2. Corporate valuation model Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 16% per year into the future. Next year, the company expects to generate a free cash flow of $7,000,000. The market value of Flying Cow’s outstanding debt and preferred stock is $45,000,000 and $25,000,000, respectively. Flying Cow has 1,500,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 23%. Given the...

Smith and T Co. is expected to generate a free cash flow (FCF) of $8,210.00 million...

Smith and T Co. is expected to generate a free cash flow (FCF) of $8,210.00 million this year (FCF₁ = $8,210.00 million), and the FCF is expected to grow at a rate of 23.80% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.54% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Smith and T Co.’s weighted average...

10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic...

10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Charles Underwood...

Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value...

Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Charles Underwood Agency...

Ankh-Sto Associates Co. is expected to generate a free cash flow (FCF) of $7,780.00 million this...

Ankh-Sto Associates Co. is expected to generate a free cash flow (FCF) of $7,780.00 million this year (FCF₁ = $7,780.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Ankh-Sto Associates Co.’s weighted average cost of...

12. 3: Basic Stock Valuation: Free Cash Flow Valuation Model Basic Stock Valuation: Free Cash Flow...

12. 3: Basic Stock Valuation: Free Cash Flow Valuation Model Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash...

Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings,...

Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash flows: Free cash flows are generally forecasted for 5 to...

Omni Consumer Products Co. is expected to generate a free cash flow (FCF) of $2,875.00 million this year (FCF₁ = $2,875.00 million)

Omni Consumer Products Co. is expected to generate a free cash flow (FCF) of $2,875.00 million this year (FCF₁ = $2,875.00 million), and the FCF is expected to grow at a rate of 20.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Omni Consumer Products Co.’s weighted average...

Subjects