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If a company has the following current Free Cash Flow and the additional information provided, what is...

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Finance

If a company has thefollowing current Free Cash Flow and the additional informationprovided, what is the price per share?

FCF Year 1 = $145,000

Expected growth ratesYr 2: 12.70%
                                         Yr 3: 14.10%
                                         Yr 4: 9.60%
                                          Yr5: 10.25%
Yr 6: 8.40%


WACC 10.85%
ROE 18.15%
Plowback 38.00%

ST investments $86,000
LT Debt         $265,000
Pfd Stock         $32,000
# of shares 105,000

Answer & Explanation Solved by verified expert
4.1 Ratings (691 Votes)

growth rate = 18.15%*0.38 = 6.897%

Discount rate 10.8500%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
                                 -   0                                            -                                           -  
             145,000.000 1                           130,807.40                       130,807.40
             163,415.000 2                           132,990.47                     263,797.868
             186,456.515 3                           136,889.61                     400,687.473
             204,356.340 4                           135,345.97                     536,033.443
             225,302.865 5                           134,613.38                       670,646.82
             244,228.306 6                           131,638.16                     802,284.985
         6,604,420.245 6                       3,559,758.33                    4,362,043.32

terminal value = 224,228.306*1.06897/(0.1085-0.06897)

value of firm = 4,362,043.32

value of equity = 4,362,043.32 - 86,000 - 265,000 - 32,000 = 3,979,043.32

value per share = 3,979,043.32/105,000 = 37.90
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Transcribed Image Text

If a company has thefollowing current Free Cash Flow and the additional informationprovided, what is the price per share?FCF Year 1 = $145,000Expected growth ratesYr 2: 12.70%                                         Yr 3: 14.10%                                         Yr 4: 9.60%                                          Yr5: 10.25%Yr 6: 8.40%WACC 10.85%ROE 18.15%Plowback 38.00%ST investments $86,000LT Debt         $265,000Pfd Stock         $32,000# of shares 105,000

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