Question
In: Finance
company has free cash flow of $120m last tear. investors belueve cahs flow will grow by...
company has free cash flow of $120m last tear. investors belueve
cahs flow will grow by 20% this year, 12% year 2, 6% annuly
thereafter. company has $1b in cash , $750 in debt, $500m is
prefered stock. if common stock is 12%. wacc is 8% and has 10m
shares outatanding . what is price per share of common stock?
Solutions
Expert Solution
| WACC= | 8.00% | ||||||
| Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
| 1 | 120 | 20.00% | 144 | 144 | 1.08 | 133.3333 | |
| 2 | 144 | 12.00% | 161.28 | 8547.84 | 8709.12 | 1.1664 | 7466.66667 |
| Long term growth rate (given)= | 6.00% | Value of Enterprise = | Sum of discounted value = | 7600 |
| Where | |||
| Current FCF =Previous year FCF*(1+growth rate)^corresponding year | |||
| Total value = FCF + horizon value (only for last year) | |||
| Horizon value = FCF current year 2 *(1+long term growth rate)/( WACC-long term growth rate) | |||
| Discount factor=(1+ WACC)^corresponding period | |||
| Discounted value=total value/discount factor | |||
| Enterprise value = Equity value+ MV of debt+ MV of preferred stock |
| - Cash & Cash Equivalents |
| 7600 = Equity value+750+500-1000 |
| Equity value = 7350 |
| share price = equity value/number of shares |
| share price = 7350/10 |
| share price = 735 |
jeff jeffy answered 1 year agoRelated Solutions
Rayco Corporation’s free cash flow in 2019 is $24 million. This is expected to grow by...
Rayco Corporation’s free cash flow in 2019 is $24 million. This
is expected to grow by 6% for the next three years. Thereafter, it
grows by 2% each year forever. The market value of debt outstanding
is $17 million, and weighted average cost of capital is 15%.
Determine the terminal value of the firm.
What model would you use to value the firm?
Determine the value of the firm, and the value of equity.
A company generated free cash flow of $43 million during thepast year. Free cash flow...
A company generated free cash flow of $43 million during the
past year. Free cash flow is expected to increase 6% over the next
year and then at a stable 2.8% rate in perpetuity thereafter. The
company's cost of capital is 11.2%. The company has $330 million in
debt, $20 million of cash, and 28 million shares outstanding.
What's the value of each share?
For a company, the cash flow from assests (or free cash flow) projections for the next...
For a company, the cash flow from assests (or free cash flow)
projections for the next three years are as follows. After year 3,
the company will continue growing at a constant rate of 1.5%. the
firm's tax rate is 3% and will maintain a debt-equity ratio of
0.50. the risk-free rate is 3%, the expected market risk premium
over the risk free rate is 6%, and the company's equity beta is
1.50. The company's pre-tax cost of debt is...
Black Hills Co. expects a free cash flow of $8,000,000 next year that will grow at...
Black Hills Co. expects a free cash flow of $8,000,000 next year
that will grow at 5% forever. The company currently has no debt and
no preferred stock, and its WACC is 10%. The company plans to take
some debt of $64,000,000 to repurchase share, but only make
interest payments. Black Hills Co. faces a 40% federal-plus-state
tax rate, and there are 400,000 shares of stock outstanding.
a. What is the market value of the unlevered firm? (4
Points)
b....
Black Hills Co. expects a free cash flow of $8,000,000 next yearthat will grow at...
Black Hills Co. expects a free cash flow of $8,000,000 next year
that will grow at 5% forever. The company currently has no debt and
no preferred stock, and its WACC is 10%. The company plans to take
some debt of $64,000,000 to repurchase share, but only make
interest payments. Black Hills Co. faces a 40% federal-plus-state
tax rate, and there are 400,000 shares of stock outstanding.a. What is the market value of the unlevered firm? (4
Points)b. What is...
You are building a free cash flow to the firm model. You expect sales to grow...
You are building a free cash flow to the firm model. You expect
sales to grow from $1 billion for the year that just ended to $2
billion five years from now. Assume that the company will not
become any more or less efficient in the future. Use the following
information to calculate the value of the equity on a per-share
basis.
Assume that the company currently has $270 million of net
PP&E.
The company currently has $90 million of...
Firm free cash flow to grow by 8% over the next 4 yrs, after it will...
Firm free cash flow to grow by 8% over the next 4 yrs, after it
will decline to 4% for 3 yrs, then will level off to 2% growth
indefinitely. Reported free cash flow $75,000,000.
WACC is 16%, what is the value of the firm today? show work
20,000,000 shares of stock, what should the value of the shares
in the market (efficient market, no debt)? show work
Part (b) suppose there's $200,000,000 of debt. what would be the
value...
you are building a free cash flow to the firm model. you expect sales to grow...
you
are building a free cash flow to the firm model. you expect sales
to grow from 1.4 billion for the year that just ended to 2.24
billion five years from now. assume that the company will not
become any more or less efficient in the future. use the following
information to calculate the value of the equity on a per share
basis.
A) assume that the company currently has 420 million of net
PP&E
B) The company currently has...
You are building a free cash flow to the firm model. You expect sales to grow...
You are building a free cash flow to the firm model. You expect
sales to grow from $1 billion for the year that just ended to $2
billion five years from now. Assume that the company will not
become any more or less efficient in the future. Use the following
information to calculate the value of the equity on a per-share
basis.
Assume that the company currently has $300 million of net
PP&E.
The company currently has $100 million of...
The free cash flow for the last year is $361M. The expected growth rate is 8%...
The free cash flow for the last year is $361M. The expected
growth rate is 8% for the next three years and 2.5% after that. If
WACC is 10%, estimate the value of this firm.
A. $3,821M.
B. $5,714M.
C. $6,063M.
D. $7,454M.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Why is it okay to speculate on Currency?
- What is the budgeting cycle and master budget? Why should companies use a master budget?
- please i need to have good answers and easy to understand This exercise refers to the...
- (1 point) Find y as a function of t if y′′+25y=0, y(0)=4,y′(0)=6. y= ?
- What are the six steps of hypothesis testing? What does it mean if we reject the...
- Consider the following network of a project consisting of 7 activities with a scheduled project duration...
- In 1941, President Roosevelt spoke about the “four freedoms.” For many in the country, however, these...
ADVERTISEMENT