Question

Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash...

Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable securities, $10; long-term debt, $80; common shares outstanding, 25. [17 points]

a. Calculate the horizon value at the end of year 3.

                                                                                                                                                                       

                                                                                                                                                                                    

b. Calculate the current value of operations.

                                                                                                                                                                        

                                                                                                                                                                                 

c. Calculate the intrinsic value of common equity.

                                                                                                                                                                                  

                                                                                                                                                                 

                                                                                                                                                                              

d. Calculate the intrinsic stock price

                                                                                                                                                                       

e. Suppose the current price of the stock is $18. Should it be purchased now?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

(e) As current market price of stock is less than intrinsic price of stock .Therefore,stock is underpriced and hence this stock should be purchased now.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free    ...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free     cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable     securities, $10; long-term debt, $80; common shares outstanding, 25. a. Calculate the horizon value at the end of year 3. b. Calculate the current value of operations. c. Calculate the intrinsic value of common equity. d. Calculate the intrinsic stock price e. Suppose the current price of...
Company A has the following free cash flows for the next three years: FCF1= -5, FCF2=10,...
Company A has the following free cash flows for the next three years: FCF1= -5, FCF2=10, and FCF3=20. After year 3, FCF is expected to grow at a constant6% rate. WACC is 10%. The company has $40 million in debt,and 10 million shares of stock outstanding. What is the horizon value? What is the firm’s value today?What is the firm’s estimated intrinsic value per share of common stock?
Praxis Corp. is expected to generate a free cash flow (FCF) of $7,890.00 million this year...
Praxis Corp. is expected to generate a free cash flow (FCF) of $7,890.00 million this year ( FCF1 = $7,890.00 million), and the FCF is expected to grow at a rate of 20.20% over the following two years ( FCF2 and FCF3 ). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever ( FCF4 ). If Praxis Corp.’s weighted average cost of capital (WACC) is 7.38%,...
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash...
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash flow is expected to grow at a constant growth rate of 5% a year in the future. The firm's WACC is 10%, and it has $600 million of long-term debt and preferred stock. If the firm has 34 million shares of common stock outstanding, what is the estimated intrinsic value per share of their common stock? Your answer should be between 14.20 and 68.54
Happy Fliers Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...
Happy Fliers Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 19% per year into the future. Next year, the company expects to generate a free cash flow of $2,000,000. The market value of Happy Fliers’s outstanding debt and preferred stock is $10,000,000 and $5,555,556, respectively. Happy Fliers has 1,500,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 28%. Given the preceding information, complete the...
Suppose Glead corporation’s projected free cash flow for next year is FCF1 = $150 million and...
Suppose Glead corporation’s projected free cash flow for next year is FCF1 = $150 million and FCF is expected to grow at a constant rate of 7.25%. If the company’s weighted average cost of capital is 10.5%, the value of debt is currently $200 million and the outstanding number of common stocks is 80 million, and there is no preferred stocks issued. Compute the value of this stock.
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 14% per year into the future. Next year, the company expects to generate a free cash flow of $8,000,000. The market value of Flying Cow’s outstanding debt and preferred stock is $51,428,571 and $28,571,429, respectively. Flying Cow has 6,750,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 21%. Given the preceding information, complete the...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term...
Flying Cow Aviation Inc.’s free cash flows (FCFs) are expected to grow at a constant long-term growth rate (gLgL) of 14% per year into the future. Next year, the company expects to generate a free cash flow of $8,000,000. The market value of Flying Cow’s outstanding debt and preferred stock is $51,428,571 and $28,571,429, respectively. Flying Cow has 6,750,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) is 21%. Given the preceding information, complete the...
Estimate the current stock price (P0) using the Free Cash Flow method with the following data:...
Estimate the current stock price (P0) using the Free Cash Flow method with the following data: Bonds Yield to Maturity: 6% Tax Rate: 30% WACC: 5.576% beta: 0.75 T-Bill Rate: 4% S&P 500 Returns: 10% Total Capital: $1,000,000 Equity: $320,000 FCF1: $250,000 FCF2: $500,000 FCF3: $750,000 Constant Growth After Year-3: 2.5% Shares Outstanding: 1,500,000 Question 1 options: $9.42 $10.91 $14.59 $8.17 $10.19 $19.42 $18.17
8b. If long-run free-cash-flow growth is 6% and free cash flow in 2023 is $108.4, what...
8b. If long-run free-cash-flow growth is 6% and free cash flow in 2023 is $108.4, what is the expected free cash flow in 2024? (page 338) Free cash flow in 2023 $                108.4 Long-run free cash flow growth 6% Free cash flow in 2024 (Solution: $114.9) 8c. What is the horizon value at 2023 given the FCF in 2024, the long-term growth rate of 6%, and a weighted average cost of capital of 10%? (page 338) Weighted average cost of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT