In: Finance
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 4%. Brandtly's WACC is 10%, the market value of its debt and preferred stock totals $68 million, the firm has $13 million in non-operating assets, and it has 20 million shares of common stock outstanding.
What is the present value of the free cash flows projected
during the next 4 years? Do not round intermediate calculations.
Round your answer to the nearest dollar. Write out your answers
completely. For example, 13 million should be entered as
13,000,000.
What is the firm's horizon, or continuing, value? Round your
answer to the nearest dollar. Write out your answers completely.
For example, 13 million should be entered as 13,000,000.
What is the market value of the company's operations? Do not
round intermediate calculations. Round your answer to the nearest
dollar. Write out your answers completely. For example, 13 million
should be entered as 13,000,000.
What is the firm's total market value today? Do not round
intermediate calculations. Round your answer to the nearest dollar.
Write out your answers completely. For example, 13 million should
be entered as 13,000,000.
What is an estimate of Brandtly's price per share? Do not round
intermediate calculations. Round your answer to the nearest
cent.
1. What is the present value of the free cash flows projected during the next 4 years? $25444300
2. What is the firm's horizon, or continuing, value? $260000000
3. What is the market value of the company's operations?
$203027799
4. What is the firm's total market value today?
Firm's Total value today = Present value of Operations + Non Operating Assets
Firm's Total value today = 203027799 + 13000000
Firm's Total value today = $216027799
5 What is an estimate of Brandtly's price per share?
Stock price = (Value of Firm - Debt and preferred stock / Shares O/s
Stock price = (216027799 - 68000000) / 20000000
Stock price = $7.40