Question

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

Year	1	2	3	4	5
FCF	-$22.02	$38.2	$43.8	$52.5	$56.4

The weighted average cost of capital is 10%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $25 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 19 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.
$   per share

Answer 1

	Year	1	2	3	4	5
	FCF	($22.02)	$38.20	$43.80	$52.50	$56.40
	Terminal value=					$ 829.89
	Total cash flow	($22.02)	$38.20	$43.80	$52.50	$886.29
	PVIF @ 10%	0.90909091	0.826446281	0.7513148	0.683013	0.620921
	Present value	($20.02)	$31.57	$32.91	$35.86	$550.31	$630.63
	Terminal value =		56.4*103%/(10%-3%)
			$        829.89
a	Value of firm =		$630.63
b	Less: Debt =		25
c	Value of equity =		$605.63
d	Number of share =	19
e=c/d	Value per share =		$31.88
	answer =		$31.88