Question

Company A has the following free cash flows for the next three years: FCF1= -5, FCF2=10,...

Company A has the following free cash flows for the next three years: FCF1= -5, FCF2=10, and FCF3=20. After year 3, FCF is expected to grow at a constant6% rate. WACC is 10%. The company has $40 million in debt,and 10 million shares of stock outstanding. What is the horizon value? What is the firm’s value today?What is the firm’s estimated intrinsic value per share of common stock?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Now we will calculate FCF4

FCF4 = 20 * 1.06

=21.2

Horizon Value i.e V3 (at the end of 3 years)

V3 = FCF4 / Kc - g

where, Kc = 10 %

g = 6 %

V3 = 21.2 / 10% - 6%

V3 = $530

Present Value of V3 = $530 * 0.7513

=$398.189

Therefore Horizon Value = $398.189

Therefore Firm's value today = $18.7445 + $398.189

=$416.9335

Calculation of Intrinsic Value per share

Total Value of Firm - Value of Debt = Value of Equity

= $ 416.9335 million - $ 40 million

= $ 376.9335 million

Therefore Intrinsic Value of Share = $ 376.9335 million / 10 million shares

=37.69335

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
RBG, Inc. FCFs over the next 3 years are projected to be FCF1 = $3 million,...
RBG, Inc. FCFs over the next 3 years are projected to be FCF1 = $3 million, FCF2 = $5 million, FCF3 = $8 million and free cash flows are projected to grow at 4% per year thereafter. RBG, Inc. also has the following information: Market value of RBG Debt = $150 million Short-term investments = $75 million Book value of equity = $160 million Total Assets = $180 million Shares outstanding = 2.5 million Required return on stock = 11%...
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%,...
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?
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable securities, $10; long-term debt, $80; common shares outstanding, 25. [17 points] a. Calculate the horizon value at the end of year 3.                                                                                                                                                                                                                                                                                                                                                              b. Calculate the current value of operations.                                                                                                                                                                                                                                                                                                                                                            c. Calculate the intrinsic value of common equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     d. Calculate the intrinsic stock...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free    ...
Consider the following information: FCF1, -$12; FCF2, $22; FCF3, $33; expected growth rate of free     cash flow, 5%; weighted average cost of capital, 9%; preferred stock, $20; notes payable, $15; marketable     securities, $10; long-term debt, $80; common shares outstanding, 25. a. Calculate the horizon value at the end of year 3. b. Calculate the current value of operations. c. Calculate the intrinsic value of common equity. d. Calculate the intrinsic stock price e. Suppose the current price of...
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...
5. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below....
5. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below. The weighted average cost of capital is 10% and the free cash flows are expected to continue to grow at 8.2 percent after Year 3 indefinitely. Year 1 2 3 Free cash flow $10.00 -$48.00 $150.50 A. Calculate the firm’s FCF for year 4. B. Calculate the Horizon value in year 3. C. Assuming a $150 million for the company’s total market value of...
Company A just reported free cash flows of $24 million and expects FCF to grow at...
Company A just reported free cash flows of $24 million and expects FCF to grow at a constant rate of 5% forever. The company has $100 million in short-term investments, $200 million debt, $50 million preferred stock, and 10 million shares of common stock outstanding. Their cost of debt is 11% and they are located in a country with no corporate taxes. If the expected risk free rate is 2%, the expected return on the S&P 500 is 8%, and...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT