Question

# You have been assigned the task of using the corporate, or free cash flow, model to...

You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be \$70.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has \$200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

FCF in Year 1 = \$70.00 million
WACC = 10.00%
Growth Rate = 5.00%

Value of Firm = FCF in Year 1 / (WACC - Growth Rate)
Value of Firm = \$70.00 million / (0.10 - 0.05)
Value of Firm = \$70.00 million / 0.05
Value of Firm = \$1,400.00 million

Value of Equity = Value of Firm - Value of Debt and Preferred Stock
Value of Equity = \$1,400.00 million - \$200.00 million
Value of Equity = \$1,200.00 million

Intrinsic Value per share = Value of Equity / Number of Shares
Intrinsic Value per share = \$1,200.00 million / 30 million
Intrinsic Value per share = \$40.00

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