Question

Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $440 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $25 million. The firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.3%; the market value of the company's debt is $2.9 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your answer to the nearest cent.

$ per share

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. Year 1 2 3 4 5 FCF -$22.15 $37.6 $43.9 $52.1 $56.4 The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 3% 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 19 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

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut A = = = V General 11 U - D. Font A A Wrap Text Merge Merge & Center - Center SF $ - % % 4:0 .00 8. Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select C Alignment Number Cells AB - AC AC AD AD AE AF AG AH AI AJ AK 5 IN MILLIONS 72 Calibri E Copy Paste Format Painter B I Clipboard AE83 AZ AA 70 71 ANS 1 73 74 75 76 77 78 79 80 81 FREE CASH FLOW EBIT(1-t) ADD: DEPRECIATION LESS : CAPITAL EXPENDITURE LESS : NET OPERATING WC FREE CASH FLOW 440 70 100 25 385 TOTAL FIRM VALUE FCF1 TOTAL FIRM VALUE 385.00 16739.13 FCF1/(WACC-g) = 385/(0.083-0.06)] 82 83 2900 84 LESS : VALUE OF DEBT LESS: VALUE OF PREFERRED STOCK VALUE OF EQUITY NO OF SHARES ANSWER INTRINSIC VALUE PER SHARE 86 87 88 13839.13 180 76.88 VALUE OF EQUITY/NO OF SHARES N FCE ARM, MSI, confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM OCF CASH FLOW STATW ferences: E149 Rea TAX GROWTH SUSTPREF AND DIV POLICY 200 130% 2. 9 * * O ENG 0 0 + 23-11-2019

NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Calibri A = = = V General 11 B- A A Wrap Text Fat Merge Merge & Center - Center B I U E = 5 st $ $ -% % , .0 .00 . Insert Delete Format E Copy Paste Format Painter Clipboard MX21 Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Font Alignment Number Cells Formula Bar MX MY MZ NA | NB NC | ND NE NH NG NH NI . 19 20 21 22 23 24 1 25 26 - -22.15 2 37.60 3 43.90 4 52.10 27 FCF TERMINAL VALUE TOTAL CASH FLOW PV FACTOR@12% PV OF CF 28 29 -22.15 0.8929 -19.78 37.60 0.7972 29.97 43.90 0.7118 31.25 5 56.40 645.47 TERMINAL VALUE = FCF5(1+g)/WACC-g 701.87 [55.1*(1+0.03)/(0.12-0.03)] 0.5674 398.26 52.10 0.6355 33.11 30 31 472.81 (SUM OF PV OF CF) 32 33 34 ENTERPRISE VALUE = CASH DEBT VALUE OF EQUITY SHARE PRICE OF STOCK 35 36 37 25 447.81 23.57 447.81/19 = H O FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST CF CASH FLOW STATW ferences: EV46 Rea PREF AND DIV POLICY I 200 130% * O ENG 0 + 23-11-2019 . B 9