Question

Company has the following cash flow stream. CF1 = 450 CF2 = 636 CF3 = 915...

Company has the following cash flow stream.

CF1 = 450

CF2 = 636

CF3 = 915

CF4 = 950

Cash flow is expected to be constant after year 4, with a growth rate of 4%. The WACC is 10%. In addition, the company has 34 millions in cash, and 33 millions debt, with 58 millions shares outstanding. What is the stock price, P0 , today?

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Answer #1

HI

At first we will calculate firm value.

Firm value will be the present value of future cash flows:

Firm Value = 450/(1+10%) + 636/(1+10%)^2 + 915/(1+10%)^3 + 950/(1+10%)^4+ 950*(1+4%)/((10%-4%)*(1+10%)^4)

=409.09 + 525.62 + 687.45 + 648.86+ 988/(6%*1.46)

=409.09 + 525.62 + 687.45 + 648.86+ 11246.95

=13,517.98

Firm Value = Market Cap + debt -cash

Market Cap = 13517.98 - 33 + 34

=13,518.98 million

Stock Price P0 = 13518.98/58

=233.09


Thanks

=$13,130.44

Thanks

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