Question

Year 1 2 3 4 5

FCF -$22.62 $38.7 $43.3 $52.6 $56.4

The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $25 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)?

Round your answer to the nearest cent. Do not round intermediate calculations.

$ 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 is (true or false)

Answer 1

What is the value of the stock price today

=((-22.62/(1+9%)^1+38.7/(1+9%)^2+43.3/(1+9%)^3+52.6/(1+9%)^4+56.4/(1+9%)^5+((56.4*(1+4%))/(9%-4%))/(1+9%)^5)-25)/18

=47.59

false (because valueis determined by cash flows and time value)