Lawrence Industries’ weighted average cost of capital is 10% in 2011 and 2012, and 12% from...

Lawrence Industries’ weighted average cost of capital is 10% in 2011 and 2012, and 12% from 2013 to infinity .It has $1,200,000 of debt at market value and $100,000 of preferred stock. The estimated free cash flows over the next 3-year is given below. Beyond 2013 to infinity, the firm expects its free cash flow to grow by 8% annually. The number of shares outstanding is 200,000. Find Lawrence Industries’ common stock value per share.

Year(t)	Free cash flow
2011	-$100,000
2012	$200,000
2013	$250,000

Expert Solution

We can calculate the desired result as follows:

The cash flows in the years 2011, 2012 & 2013 are -$ 100,000 , $ 200,000 & 250,000 simultaneously.

We can calculate the value of the firm in the excel sheet as follows:

Formulas used in the excel sheet are:

Value of the firm comes out to be $ 5,056,841.90

Value of Equity = Value of firm - Value of Debt - Value of Preferred Shares

= 5,056,841.90 - 1,200,000 - 100,000

= $ 3,756,841.90

Value of Equity per share = Value of Equity / Number of shares outstanding

= 3,756,841.90 / 200,000

= $ 18.78

So, common stock value per share is $ 18.78

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jeff jeffy answered 1 year ago

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