The Stetson Corp. estimates that it will have free cash flow of $20 million, $30 million and $40 million in the next three years respectively. After that, FCF will grow at 8% indefinitely. Their cost of capital is 9.4%, and they have $120 in debt, $30 million of preferred stock and $20 million in short term investments. There are 10 million shares of common stock outstanding. Estimate the price per share of common stock using the FCF valuation model.
|Year||Previous year FCF||FCF growth rate||FCF current year||Horizon value||Total Value||Discount factor||Discounted value|
|Long term growth rate (given)=||8.00%||Value of Enterprise =||Sum of discounted value =||2430.59 mln|
|Enterprise value = Equity value+ MV of debt+ MV of preferred stock|
|- Short term investments|
|2430.59 = Equity value+120+30-20|
|Equity value = 2300.59 mln|
|share price = equity value/number of shares|
|share price = 2300.59/10|
|share price = 230.06|
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