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?

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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 9 months ago

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