Question

8b. If long-run free-cash-flow growth is 6% and free cash flow in 2023 is $108.4, what...

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 capital 10%
Horizon value at 2023 (Solution: $2,872.6 vs. $2,872.7 in book)
9a. Calculate the present value of the 2023 horizon value using information from 8c. Use the PV function (page 338)
Years to discount                       5.00
Present value of 2023 horizon value (Solution: $1,783.7)
9b. Given the information below, calculate total corporate value. (page 338)
Sum of present values of FCF in years 2019-2023 $              245.10
Total corporate value (Solution: $2,028.8)
9c. Given the market value of debt and preferred stock, and the shares outstanding, compute the estimate of the intrinsic value per share. (page 338)
Market value of debt and preferred stock $              860.00
Shares outstanding in millions                    50.00
Intrinsic value per share estimate (Solution: $23.38)
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Homework Answers

Answer #1

8.B

FCFF 2024= FCFF of 2023*(1+growth)

=108.4*(1+0.06)

=114.904( i didnot make roundings because to get the same answer for the 8.C. which you have given in the question)

8.C.

Horizon value= FCFF in 2024/ ( WACC- growth)

=114.904/(0.1-0.06)

=2872.6

9.A

present value= horizon value /(1+WACC)^ years

=2872.6/(1+0.1)^5

PRESENT VALUE = 1783.7

9B

Corporate value= sum of present value 2019 to 23 and PV of horizon

=245.1+1783.7

=2028.8

9C

Value per share=(corporate value- market value of debt& pref stock )/ shares outstanding

=(2028.8-860) /50

=23.38

Thats it

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