Question

Assume that today is December 31, 2016, and that the following information applies to Abner Airlines:

After-tax operating income [EBIT(1 - T)] for 2017 is expected to be $550 million.
The depreciation expense for 2017 is expected to be $110 million.
The capital expenditures for 2017 are expected to be $400 million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 6% per year.
The required return on equity is 14%.
The WACC is 12%.
The market value of the company's debt is $3 billion.
140 million shares of stock are outstanding.

Using the corporate valuation model approach, what should be the company's stock price today? Round your answer to the nearest cent. Write out your answer completely. For example, 0.00013 million should be entered as 130.

$_______

Answer 1

=550+110-400-0=260

firm or enterprise value = FCF in 1 year* (1 + growth rate )/(WACC - growth rate)

Firm/enterprise value = 260/ (0.12 - 0.06)

Firm/enterprise value = 4333.33

Enterprise value = Equity value+ MV of debt

4333.33 = Equity value+3000

Equity value = 1333.33

share price = equity value/number of shares

share price = 1333.33/140

share price = 9.52