Question

Use the following information for the next three questions:

Coco&Nut Corp. just reported $8,000 annual free cash flows. The FCFs are expected to grow at 9% for the next 2 years, then at a constant rate of 3% forever. The firm's cost of capital is 15%. They have $20,000 debt and 1,500 shares of common stocks outstanding.

48) What is the terminal value of Coco&Nut in Year 2?

Question 48 options:

	$81,583
	$92,471
	$112,547
	$106,390

How much is the current company value of Coco&Nut?

Question 49 options:

	$68,411
	$94,282
	$76,458
	$132,769

What is the stock price per share of Coco&Nut?

Question 50 options:

	$42.70
	$37.64
	$50.97
	$23.60

Answer 1

a. The horizon value is computed as shown below:

= FCF in year 2 (1 + growth rate) / ( cost of capital- growth rate)

= ($ 8,000 (1 + 0.09)² x 1.03) / (0.15 - 0.03)

= $ 9,789.944 / 0.12

= $ 81,582.86667 or $ 81,583 Approximately

b. The value of the firm is computed as shown below:

= FCF in year 1 / (1 + cost of capital) + FCF in year 2 / (1 + cost of capital)² + Horizon value / (1 + cost of capital)²

= ($ 8,000 x 1.09) / 1.15 + ($ 8,000 x 1.09²) / 1.15² + $ 81,582.86667 / 1.15²

= $ 8,720 / 1.15 + $ 9,504.8 / 1.15² + $ 81,582.86667 / 1.15²

= $ 76,458 Approximately

c. The current price per share is computed as shown below:

= (Value of the firm - Debt) / Number of shares outstanding

= ($ 76,458 - $ 20,000) / 1,500

= $ 37.64 Approximately