Question

Consider the following information: FCF_{1}, -$12;
FCF_{2}, $22; FCF_{3}, $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 the stock is $18. Should it be purchased now?

Answer #1

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...

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?

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

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.

You must estimate the intrinsic value of IST Technologies’
stock. The end-of-year free cash flow (FCF1) is expected
to be $55.00 million, and it is expected to grow at a constant rate
of 5.0% a year thereafter. The company’s WACC is 9.0%, it has
$105.0 million of long-term debt plus preferred stock outstanding,
and there are 20.0 million shares of common stock outstanding. What
is the firm's estimated intrinsic value per share of common
stock?

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...

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...

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

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 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...

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