Question

Globo-Chem Co. is expected to generate a free cash flow (FCF) of $9,980.00 million this year (FCF₁ = $9,980.00 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). Assume the firm has no nonoperating assets. If Globo-Chem Co.’s weighted average cost of capital (WACC) is 7.38%, what is the current total firm value of Globo-Chem Co.? (Note: Round all intermediate calculations to two decimal places.)

A. $273,869.65 million

B. $31,343.61 million

C. $328,643.58 million

D. $331,625.11 million

Globo-Chem Co.’s debt has a market value of $205,402 million, and Globo-Chem Co. has no preferred stock. If Globo-Chem Co. has 750 million shares of common stock outstanding, what is Globo-Chem Co.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.)

A. $91.29

B. $90.29

C. $100.42

D. $273.87

Answer 1

Note: Here we discount the future cash flow using the weighted Average Cost of Capital (WACC) i.e. 7.38%. Therefore the discount factor v =