Question

Using the free cash flow valuation model to price an IPO  Personal Finance Problem   Assume that it is the end of year 2015 and you have an opportunity to buy the stock of​ CoolTech, Inc., an IPO being offered for

​$4.33

per share. Although you are very much interested in owning the​ company, you are concerned about whether it is fairly priced. To determine the value of the​ shares, you have decided to apply the free cash flow valuation model to the​firm's financial data that​ you've developed from a variety of data sources. The key values you have compiled are summarized in the following​ table,

Free cash flow
Year​ (t)	FCF			Other data
2016	​$750,000			Growth rate of​ FCF, beyond 2019 to infinityequals=5 %
2017	​$900,000			Weighted average cost of capitalequals=13 %
2018	​$990,000			Market value of all debtequals=$2,300,000
2019	​$1,090,000			Market value of preferred stockequals=$920,000
				Number of shares of common stock to be issuedequals=1,100,000

.

a. Use the free cash flow valuation model to estimate​ CoolTech's common stock value per share.

a. The value of​ CoolTech's entire company is

​$ 11,497,477

The value per share of​ CoolTech's common stock is

​$ ? nothing.

  ​(Round to the nearest​ cent.)

Answer 1