Question

Company has the following cash flow stream. CF1 = 335 CF2 = 631 CF3 = 839...

Company has the following cash flow stream.

CF1 = 335

CF2 = 631

CF3 = 839

Cash flow is expected to be constant after year 3, with a growth rate of 4%. The WACC is 10%. In addition, the company has 25 millions in cash, and 64 millions debt, with 11 millions shares outstanding. What is the stock price, P0 , today?

cash flows are millions

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Answer #1
Year t Cash Flow Discounting Factor
[1/(1.1^t)]		 PV of Cash Flow
(cash flow*discounting factor)
1 1 335 0.909090909 304.5454545
2 2 631 0.826446281 521.4876033
3 3 839 0.751314801 630.353118
3 3 Terminal Value=
[(839+4%)/(10%-4%)]		 14542.66667 0.751314801 10926.12071
Expected Value of CFs today
=sum of PVs		 12382.50689 Millions

Net Value of Equity Today = Value of Cash Flows Today+Cash Available-Debt = 12382.50689+25-64 = 12343.50689 Millions

Stock Price Today = Net Value of Equity Today/Number of Shares outstanding = 12343.50689/11 = 1122.137 = 1122.14

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