Question

Assume that today is December 31, 2019, and that the following information applies to Abner Airlines:

After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $600 million.
The depreciation expense for 2020 is expected to be $130 million.
The capital expenditures for 2020 are expected to be $225 million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 5% per year.
The required return on equity is 16%.
The WACC is 9%.
The firm has $206 million of non-operating assets.
The market value of the company's debt is $4.998 billion.
330 million shares of stock are outstanding.

Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.

$ _____

Answer 1

EBIT(1-t) = $600

Add: Depreciation Expense(non-cash) = $130 million

Less: Net Capital expenditure = $225

Change in Net operating working capital = $0 million

Free cash flow = $505 million

Value of firm is equal to the present value of all future free cash flows

= 505/(9%-5%)

= $12,625 million

Add: Non-operating assets = 206

Less: Value of Debt = $4,998 million

Value of Common Equity = $7,833 million

Number of shares = 330 million

Intrinsic value per share = $23.74