You are going to use free cash flow model to estimate Weeky Corporation's intrinsic value. The...

You are going to use free cash flow model to estimate Weeky Corporation's intrinsic value. The firm's WACC is 12%. The company will have the free cash flows (in millions) shown below. After Year 3, the FCFs are expected to grow at a constant rate of 5.00% a year in the future. The company has $160 million of long-term debt and preferred stock, and it has 40 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

Year	1	2	3
Free cash flow	−$10.00	$35.00	$50.00

a. The time that the company's cash flow settle down to long term growth rate (horizon time) is year what?

b. The Company's Free cash flow at year 4 is ( ) million

c. The Firm Value at year 3 (Horizon Value) is ( ) million.

d. The Firm Value at time 0 is (. ) millions.

e. Then the firm's estimated instrinsic value per share of common stock at time 0 is $(. )

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago

Problem 6-6 Free Cash Flow Model (LO3, CFA2) You are going to value Lauryn’s Doll Co....

Problem 6-6 Free Cash Flow Model (LO3, CFA2) You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of 0.5, and a tax rate of 40 percent. Assume a risk-free rate of 5 percent and a market risk premium of 8 percent. Lauryn’s Doll Co. had EBIT last year of $47 million, which is net of a depreciation expense of...

You are trying to value the stock of MicroTrans Inc. using a free cash flow model....

You are trying to value the stock of MicroTrans Inc. using a free cash flow model. The firm currently has 75 million shares outstanding, a market value of debt of $300 million and $80 million in excess cash. You have estimated the free cash flows for the next few years as shown in the table below. You also assume that free cash flows will grow at a rate of 3% each year after year 3 (in perpetuity). The weighted average...

Discounted Cash Flow Models discussed: The Adjusted Present Value Model The Free Cash Flow to Equity...

Discounted Cash Flow Models discussed: The Adjusted Present Value Model The Free Cash Flow to Equity Model What are the advantages and shortcomings of each? Which one do you think is generally better to use? Why?

You value a company using the discounted free cash flow model and the residual operating income...

You value a company using the discounted free cash flow model and the residual operating income model. You are surprised that the valuations are different. Which of the following could be the cause? A. Your forecast horizon is too short B. You have assumed that weighted-average cost of capital (WACC) will be constant in the future C. You have forecasted that the company’s leverage will stay constant D. You have forecasted sales growth to converge to the long-run economic growth...

Click here to read the eBook: Free Cash Flow Problem Walk-Through FREE CASH FLOW Arlington Corporation's...

Click here to read the eBook: Free Cash Flow Problem Walk-Through FREE CASH FLOW Arlington Corporation's financial statements (dollars and shares are in millions) are provided here. Balance Sheets as of December 31 2016 2015 Assets Cash and equivalents $ 14,000 $ 12,000 Accounts receivable 35,000 30,000 Inventories 32,675 28,000 Total current assets $ 81,675 $ 70,000 Net plant and equipment 52,000 47,000 Total assets $133,675 $117,000 Liabilities and Equity Accounts payable $ 10,100 $ 9,500 Accruals 7,100 6,000 Notes...

a) Using the Dividend Discount Model (DDM), you estimate the intrinsic value of ABC Ltd is...

a) Using the Dividend Discount Model (DDM), you estimate the intrinsic value of ABC Ltd is $7.50. If the constant dividend growth rate is 5% and the required rate of return is 9% per annum. Calculate the dividend per share paid by ABC Ltd today. b) ABC Ltd just announced that it is not expected to pay any dividends for the next 4 years. Then the expected dividend per share found in part (a) will be paid to shareholders, which...

QUESTION START a) Using the Dividend Discount Model (DDM), you estimate the intrinsic value of ABC...

QUESTION START a) Using the Dividend Discount Model (DDM), you estimate the intrinsic value of ABC Ltd is $7.50. If the constant dividend growth rate is 5% and the required rate of return is 9% per annum. Calculate the dividend per share paid by ABC Ltd today. b) ABC Ltd just announced that it is not expected to pay any dividends for the next 4 years. Then the expected dividend per share found in part (a) will be paid to...

How do you use free cash flow valuation to find the value of a stock? (Please...

How do you use free cash flow valuation to find the value of a stock? (Please include formula and example.)

Use the Free Cash Flow method of valuation and the following information, to calculate the value...

Use the Free Cash Flow method of valuation and the following information, to calculate the value for a venture with the following information. Expected sales at year zero (or beginning of year 1): $2.50 M; growth rate in sales for the first 8 years: 35%; and for years 9-on: 10%; Annual profit margin (or EBIAT/Sales) for all years=22%; Annual asset intensity ratio (or (FA+WC)/Sales) for all years = 32%; discount rate in years 1-8: 30%, and in years 9-on: 16%....

compare and contrast capital asset model to the free cash flow model?

Question