Question

Assume that today is December 31, 2018, and that the following information applies to Abner Airlines:

After-tax operating income [EBIT(1 - T)] for 2019 is expected to
be $500 million.

The depreciation expense for 2019 is expected to be $180
million.

The capital expenditures for 2019 are expected to be $400
million.

No change is expected in net operating working capital.

The free cash flow is expected to grow at a constant rate of 6% per
year.

The required return on equity is 15%.

The WACC is 10%.

The firm has $200 million of non-operating assets.

The market value of the company's debt is $3.096 billion.

340 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

**Free cash
flow:**

**Free cash flow =** Net operating profit after tax
(NOPAT) + Depreciation expenses - capital expenditure - changes in
Net working capital

= $500 million + $180 million - $400 million - 0

= $280 million

**Firm's Total
value:**

**Total firm value =** Free cash flow / (Weighted
average cost of capital - Growth rate)

= $280 million / (0.10 - 0.06)

= $280 million / 0.04

= $7,000 million

**Value of common
equity**

**Value of common equity =** Total firm value +
value of non-operating assets - Market value of debt

= $7,000 million + $200 million - $3,096 million

= $4,104 million

**Stock price today
:**

**Stick price today =** Value of common equity /
Number of shares of common stock outstanding

= $4,104 million / $340 million

= $12.07 per share

**Today's stock price = $12.07 per share**

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 $80
million.
The capital expenditures for 2020 are expected to be $425
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 7% per
year.
The required return...

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 $400 million. The
depreciation expense for 2020 is expected to be $190 million. The
capital expenditures for 2020 are expected to be $350 million. No
change is expected in net operating working capital. The free cash
flow is expected to grow at a constant rate of 7% per year. The
required return...

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 $700 million. The
depreciation expense for 2020 is expected to be $70 million. The
capital expenditures for 2020 are expected to be $300 million. No
change is expected in net operating working capital. The free cash
flow is expected to grow at a constant rate of 4% per year. The
required return...

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 $700 million. The
depreciation expense for 2020 is expected to be $200 million. The
capital expenditures for 2020 are expected to be $475 million. No
change is expected in net operating working capital. The free cash
flow is expected to grow at a constant rate of 4% per year. The
required return...

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 $100
million.
The capital expenditures for 2020 are expected to be $200
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 6% per
year.
The required return...

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 $650 million.
The depreciation expense for 2020 is expected to be $100
million.
The capital expenditures for 2020 are expected to be $350
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 4% per
year.
The required return...

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 $650 million.
The depreciation expense for 2020 is expected to be $140
million.
The capital expenditures for 2020 are expected to be $425
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...

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...

Assume that today is December 31, 2016, and that the following
information applies to Abner Airlines:
After-tax operating income [EBIT(1 - T)] for 2017 is expected to
be $550 million.
The depreciation expense for 2017 is expected to be $110
million.
The capital expenditures for 2017 are expected to be $400
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 6% per
year.
The required return...

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 $550 million.
The depreciation expense for 2020 is expected to be $150
million.
The capital expenditures for 2020 are expected to be $450
million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 7% per
year.
The required return...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 21 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 4 hours ago

asked 4 hours ago

asked 4 hours ago