Question

help!!

4. Corporate Valuation Model ABC Corp. just reported Free Cash Flow (FCF) of $235.69 million Managers expect that FCF will continue to grow at a constant rate of 4%. The firm also has some short-term marketable securities worth $50 million that are considered non-operating assets, so are not included in free cash flow. The firm has short-term debt in the form of notes payable of $150 million, long term debt of $500 million, and has issued preferred stock worth $50 million. Accruals and accounts payable on the balance sheet total $550 million and the book value of equity is 3.000 million Managers estimate a weighted average cost of capital (WACC) of 7.0%, and there are 100 million shares outstanding. a What is the present value of the firm's operations (Voor) under the constant growth corporate valuation model? b. What is the total present value of the company (V.)? c. What is the total amount of non-equity claims on the company's FCFs/assets? (Hint: Keep in mind what types of claims are relevant for this calculation) 3. What is the total market value of the firm's equity (Voor)? e. What should the firm's stock sell for per share (Po)?

Answer 1

1. V(Operations) = FCCF (1 + Growth Rate) / (WACC – Growth Rate)

= 235.69(1*4%) / (7% - 4%)

=$ 8170.59 Mn

2. V(Firm) = V(Operations) – Accruals & Accounts Payable

= $7620.59 Mn

             

3. Total Non Equity Claims = Short Term Debt + Long Term Debt + Preferred Stock

                             = $ 700 Mn

4. V(Equity) = V(Operations) + Short Term Marketable Securities – (Short Term Debt + Long Term Debt + Preferred Stock)

= $ 7520.59 Mn

5. Value per Share = V(Equity) / No. of shares outstanding

= $ 75.20