ZuoTi.Pro
Question

• Suppose FCFF = $1 mil for years 1-4 and then is expected to grow at...

• Suppose FCFF = $1 mil for years 1-4 and then is expected to grow at a rate of 3%. Assume WACC = 15%. If 500,000 shares are outstanding, what is the predicted price of this stock if the firm has $5,000,000 of debt?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Year 5 FCFF = 1,000,000 (1 + 3%) = 1,030,000

Value at year 4 = FCFF5 / required rate - growth rate

Value at year 4 = 1,030,000 / 0.15 - 0.03

Value at year 4 = 1,030,000 / 0.12

Value at year 4 = 8,583,333.333

Total firm value = Annuity * [1 - 1 / (1 + r)n] / r + FV / (1 + r)n

Total firm value = 1,000,000 * [1 - 1 / (1 + 0.12)4] / 0.12 + 8,583,333.333 / (1 + 0.12)4

Total firm value = 1,000,000 * [1 - 0.635518] / 0.12 + 5,454,863.506

Total firm value = 1,000,000 * 3.037349 + 5,454,863.506

Total firm value = $8,492,212.853

Equity value = 8,492,212.853 - 5,000,000

Equity value = 3,492,212.853

Price of stock = 3,492,212.853 / 500,000

Price of stock = $6.98

0 1
Add a comment
Know the answer?
Add Answer to:
• Suppose FCFF = $1 mil for years 1-4 and then is expected to grow at...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Suppose FCFE = $900,000 for years 1-4 and then is expected to grow at a rate...

    Suppose FCFE = $900,000 for years 1-4 and then is expected to grow at a rate of 3%. Assume ke = 18%. If there are 500,000 shares outstanding, what is the predicted price of this stock?

  • 7-Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a...

    7-Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. Today’s market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left to maturity, with 8% coupon rate with semi-annual payments. If your company’s capital structure is 35% debt and 65% equity, with the tax rate of 40% what is the WACC? Your...

  • Crost Company has FCFF of $ 1.7 billion and FCFE of $ 1.3 billion. Crost’s WACC...

    Crost Company has FCFF of $ 1.7 billion and FCFE of $ 1.3 billion. Crost’s WACC is 11 percent, and its required rate of return for equity is 13 percent. FCFF is expected to grow forever at 7 percent, and FCFE is expected to grow forever at 7.5 percent. Crost has debt outstanding of $ 15 billion. a) What is the total value of Crost's equity using the FCFF valuation approach? b) What is the total value of Crost's equity...

  • Valuation Example DaDalt, Incorporated currently has EBIT of $135 million. It is expected to grow at...

    Valuation Example DaDalt, Incorporated currently has EBIT of $135 million. It is expected to grow at 15% for 2 years and then settle down to 5% thereafter (forever). DaDalt analysts have shown that they spend 5% of after-tax EBIT on net working capital and another 1 1% on net capital expenditures. If Dada It's WACC is 7%, what is the per share price of Dadalt today? The firm's debt has a market value of $750 million, and the firm has...

  • A Bayani Bakery’s most recent FCF was $48 million; the FCF is expected to grow at...

    A Bayani Bakery’s most recent FCF was $48 million; the FCF is expected to grow at a constant rate of 6%. The firm’s WACC is 12%, and it has 15 million shares of common stock outstanding. The firm has $30 million in short-term investments, which it plans to liquidate and distribute to common shareholders via a stock repurchase; the firm has no other nonoperating assets. It has $368 million in debt and $60 million in preferred stock. FCF = $48.0...

  • A project will generate annual after-tax CFs of $1.2m for the next 4 years what is...

    A project will generate annual after-tax CFs of $1.2m for the next 4 years what is the project's NPV adjusted for flotation costs? ne the firm has a WACC of 14% and debt-to-equity ratio of .55. If flotation c equity qulity, For 15-17, assume Firm A has the following securities: Common stock: Price-s 48, div t-1)-$2.25, g-3%, 100m shares outstanding. -7% (semiannual coupons), Par-$1000, 13 yea Bonds: Price-$1000, cou outstanding. pon rate 15. (2 pts) Use the DCF approach to...

  • Suppose a firm has 33 million shares of common stock outstanding at a price of $40...

    Suppose a firm has 33 million shares of common stock outstanding at a price of $40 per share. The firm also has 200,000 bonds outstanding with a current price of $1005.2. The outstanding bonds have yield to maturity 10.8%. The firm's common stock beta is 1.2 and the corporate tax rate is 36%. The expected market return is 12% and the T-bill rate is 6%. What is the WACC for this firm? (All answers should be in the format of...

  • RAD Co.’s most recent free cash flow was $1,000,000. The firm is expected to grow free...

    RAD Co.’s most recent free cash flow was $1,000,000. The firm is expected to grow free cash flow at a constant rate of 3% per year forever. RAD Co. has $2,000,000 of debt, $800,000 of preferred stock, and 100,000 shares outstanding. The Weighted Average Cost of Capital is 7%. Compute firm value and today’s stock price.

  • Company A’s current free cash flow is $2 dollars and forecasts its FCFF to grow at...

    Company A’s current free cash flow is $2 dollars and forecasts its FCFF to grow at 0% for 2 years, then 10% for 2 years, then at 5% forever. The firm is consisted of 100% equity and has no debt. If the company’s beta is 1.5, the risk free rate is 2% and the market return is 10%. What will be the equity value of the firm today using DCF model?

  • Growth Company's current share price is $20.05 and it is expected to pay a $0.95 dividend per sha...

    Growth Company's current share price is $20.05 and it is expected to pay a $0.95 dividend per share next year. After that, the firm's dividends are expected to grow at arate of 4.2% per year. a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preferred stock outstanding that pays a $1.85 per share fixed dividend. If this stock is currently priced at $28.00, what is Growth Company's cost of preferred stock? c. Growth...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT