Question

Year 1 2 3 4 5 FCF -$22.32 $38.3 $43.7 $51.7 $56.4 The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $26 million of market value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. What is the value of the stock price today (Year 07 Round your answer to the nearest cent. Do not round Intermediate calculations. 0 per share According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the Investor plans to hold the stock The statement above i Select true Conclusions false

Answer 1

Value of firm is equal to the present value of all future free cash flows

-22.32/(1.12)+38.3/(1.12)^2 + 43.7/(1.12)^3 + 51.7/(1.12)^4 + 56.4/(1.12)^5 + 56.4(1.04)/(1.12)^5 (12%-4%)

= $522.61 million

Value per share = (522.61 – 26)/18

= $27.59 per share

False