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You are valuing a company with free cash flows expected to grow at a stable 2.8%...

You are valuing a company with free cash flows expected to grow at a stable 2.8% rate in perpetuity. Analysts are forecasting free cash flows of $16 million for next year (FCFF1). The company has $23 million of debt and $8 million of cash. Cost of capital is 10.6%. There are 23 million shares outstanding. How much is each share worth according to your valuation? Round to one decimal place.

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Answer #1

rate positively ..

Value of the firm = Free cash flow next year/(reqiured rate - growth rate)
16/(10.6%-2.8%)
            205.13 million
we also need to add the cash and reduce the debt value to arrive at value of eqiuty
Value of equity = 205.13+8-23
            190.13 mil
number of share = 23 mil
Value of share = $               8.3 per share
190.13/23
ans = $               8.3
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