Question

# 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 has zero non-operating assets. What is the firm's estimated intrinsic value per share of common stock? Please include excel formulas.

Based on the given data, pls find below steps, workings and answer:

WACC is 10%, perpetual growth rate is 5%, Free Cash Flows = \$ 70 Million, Debt = \$ 200 million and Cash = 0

Enterprise Value = FCF / (WACC% - Growth %) = 70 / (10%-5%) = \$1400 Million

Equity Value = Enterprise Value - Debt Obigations + Cash and Cash Equivalents = 1400 - 200 + 0 = \$ 1200 Million

Outstanding shares (Common stock) = 30 Million

Estimated Intrinsic value per stock = Equity Value / Outstanding Shares = \$ 1200 / 30 = \$ 40 per share

Answer:  The firm's estimated intrinsic value per share of common stock is \$ 40 per share.

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