Suppose you work as an Equity Research Analyst for the Teachers’ Retirement Pension Fund. Your fund...

Suppose you work as an Equity Research Analyst for the Teachers’ Retirement Pension Fund. Your fund is offered to purchase TechRevolution public offering at $3.30 per share. While your fund’s manager is very interested in this stock, he also wants to make sure the fund pays a fair price per share, so he asked you to determine the fundamental price of the firm’s stock. Using various sources, you gathered the following information about TechRevolution

Year	Free cash flow (FCF forecast), $	Other data
2020	700,000	FCF growth rate (2023 to ∞) = 2.5% per year
2021	735,000	Weighted average cost of capital = 14% per year
2022	765,000	Market value of company’s debt = $3,000,000
2023	790,000	Market value of preferred stock = $0
Terminal	TBD	Common shares outstanding = 1,000,000

Expert Solution

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

Cell reference -

jeff jeffy answered 1 year ago

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