Question

2. Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

Year	1	2	3	4	5
FCF	$-22.11	$37.7	$43.5	$52.7	$56.4

The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.

Ans: $_________ per share

Answer 1

Year Cash flows pv @ 9% -$22.11 0.9174 $37.70 0.8417 $43.50 0.7722 $52.70 0.7084 $56.40 0.6499 $968.2 (56.4*1.03)/(0.09-0.03) 0.6499 Present value of future cash flows [ value of the firm ] Present value $20.28 $31.73 $33.59 $37.33 $36.66 $629.26 $748 value of firm at year 5 Enterprise value = $748.29 million value of the firm = less: debt = value of equity = $748 $24 $724 million share price = $36.21 [ 724/20]