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?

Please show your calculations

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
3. You have been assigned the task of using the corporate, or free cash flow, model...
3. 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. Assume the firm...
Beishan Technologies' end-of-year free cash flow (FCF1) is expected to be $70 million, and free cash...
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
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1)...
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?
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is...
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is expected to be $5 million for the first two years and $27 million for year 3, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company's WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value...
You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF...
You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF 1) is expected to be $28.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. Assume the firm has zero non-operating assets. What is the firm's estimated intrinsic value per share...
Praxis Corp. is expected to generate a free cash flow (FCF) of $7,890.00 million this year...
Praxis Corp. is expected to generate a free cash flow (FCF) of $7,890.00 million this year ( FCF1 = $7,890.00 million), and the FCF is expected to grow at a rate of 20.20% over the following two years ( FCF2 and FCF3 ). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever ( FCF4 ). If Praxis Corp.’s weighted average cost of capital (WACC) is 7.38%,...
11. More on the corporate valuation model Galaxy Corp. is expected to generate a free cash...
11. More on the corporate valuation model Galaxy Corp. is expected to generate a free cash flow (FCF) of $14,415.00 million this year (FCF₁ = $14,415.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets. If Galaxy...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Tropetech Inc. has an expected net...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach...
The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Tropetech Inc. has an expected net...
Suppose Glead corporation’s projected free cash flow for next year is FCF1 = $150 million and...
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.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT