At the beginning of its fiscal year 2019, an analyst made the following forecast for GM,...

At the beginning of its fiscal year 2019, an analyst made the following forecast for GM, Inc. (in millions of dollars):

	2019	2020	2021	2022
Cash flow from operation	$1,035	$3,180	$3,155	$2,120
Cash investment	425	480	445	820

GM did not have any short-term and long-term debt at the beginning of 2019. Assume that free cash flow will grow at 5 percent per year in 2023 and 2024, after that this will grow at 4 percent per year. GM had 305 million shares outstanding at the beginning of 2019, trading at $73.25 per share. Using a required return of 10 percent, calculate the following for GM at the beginning of 2019:

The enterprise value. [6 marks]
Equity value. [1 marks]
Equity value per share. [2 marks]
Based on your estimate, should investors buy the share of this company? [1 marks]

Expert Solution

jeff jeffy answered 2 years ago

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