Question

Today is December 31, 2020. The following information applies to Vermeil airlines: After-tax operating income [EBIT(1-T)] for 2021 is expected to be $10 million. The company’s depreciation expense for 2021 is expected to be $2 million The company’s capital expenditures for 2021 are expected to be $2 million. No change is expected in the company’s net operating working capital. The company’s free cash flow is expected to grow at a constant rate of 5 percent. The company’s cost of equity is 14 percent. The company’s WACC is 10 percent. The market value of the company’s debt is $100 million. The company has 5 million shares of stock outstanding. Using the free cash flow approach (corporate value model), what should the company’s stock price be today?

Group of answer choices

$5

$20

$35

$50

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -