Question

Widget Corp. is expected to generate a free cash flow (FCF) of $7,555.00 million this year (FCF₁ = $7,555.00 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 Widget Corp.’s weighted average cost of capital (WACC) is 7.38%, what is the current total firm value of Widget Corp.? (Note: Round all intermediate calculations to two decimal places.)

$207,323.13 million

$23,727.54 million

$251,044.82 million

$248,787.76 million

Widget Corp.’s debt has a market value of $155,492 million, and Widget Corp. has no preferred stock. If Widget Corp. has 150 million shares of common stock outstanding, what is Widget Corp.’s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.)

$345.54

$344.54

$1,036.61

$380.09

Answer 1

х =+C209*1.0246 C210 А В C D Е F 206 PVIF @ 7.38% Present value 0.931 $ 7,035.76 Millions 207 $ FCF 1 7,555.00 0.867 $ 7,875.75 Millions 208 $ FCF 2 9,081.11 0.808 $ 8,816.03 Millions $ 209 FCF 3 10,915.49 FCF 4 Horizon value 210 $ 11,184.02 183,595.68 Millions 0.808 $ $ 211 227,317.39 11184.02/(7.38%-2.46%) 212 Firm's value today $207,323.23 Millions 213 $ 155,492.00 Millions 214 Less: Debt Add: Cash Add: Marketable securities 215 $ Millions $ 216 Millions 217 51,831.23 Millions 150 Millions Common stocks value Number of shares $ 218 219 220 Intrinsic value $ share 345.54 share per per 221

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