Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $9 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 3%. Brandtly's WACC is 9%, the market value of its debt and preferred stock totals $70 million, the firm has $15 million in non-operating assets, and it has 23 million shares of common stock outstanding.
What is the present value of the free cash flows projected
during the next 4 years? Do not round intermediate calculations.
Round your answer to the nearest dollar. Write out your answers
completely. For example, 13 million should be entered as
13,000,000.
$
What is the firm's horizon, or continuing, value? Round your
answer to the nearest dollar. Write out your answers completely.
For example, 13 million should be entered as 13,000,000.
$
What is the market value of the company's operations? Do not
round intermediate calculations. Round your answer to the nearest
dollar. Write out your answers completely. For example, 13 million
should be entered as 13,000,000.
$
What is the firm's total market value today? Do not round
intermediate calculations. Round your answer to the nearest dollar.
Write out your answers completely. For example, 13 million should
be entered as 13,000,000.
$
What is an estimate of Brandtly's price per share? Do not round
intermediate calculations. Round your answer to the nearest
cent.
$
Answer a.
FCF1 = $3,000,000
FCF2 = $6,000,000
FCF3 = $9,000,000
FCF4 = $15,000,000
WACC = 9%
Present Value of FCF during next 4 years = $3,000,000/1.09 +
$6,000,000/1.09^2 + $9,000,000/1.09^3 + $15,000,000/1.09^4
Present Value of FCF during next 4 years = $25,378,403
Answer b.
Growth Rate = 3%
FCF5 = FCF4 * (1 + Growth Rate)
FCF5 = $15,000,000 * 1.03
FCF5 = $15,450,000
Horizon Value = FCF5 / (WACC - Growth Rate)
Horizon Value = $15,450,000 / (0.09 - 0.03)
Horizon Value = $257,500,000
Answer c.
Market Value of Company’s Operations = $257,500,000/1.09^4
Market Value of Company’s Operations = $182,419,492
Answer d.
Total Market Value today = Present Value of FCF during next 4
years + Market Value of Company’s Operations
Total Market Value today = $25,378,403 + $182,419,492
Total Market Value today = $207,797,895
Answer e.
Market Value of Equity = Total Market Value today - Market Value
of Debt and Preferred Stock + Non-Operating Assets
Market Value of Equity = $207,797,895 - $70,000,000 +
$15,000,000
Market Value of Equity = $152,797,895
Price per share = Market Value of Equity / Number of shares
outstanding
Price per share = $152,797,895 / 23,000,000
Price per share = $6.64
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $8 million, and $13 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $7 million, $12 million, and $14 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $4 million, $7 million, $8 million, and $16 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $8 million, and $14 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $6 million, $9 million, and $15 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $4 million, $7 million, $11 million, and $16 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $7 million, $9 million, and $15 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $2 million, $7 million, $11 million, and $16 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $3 million, $7 million, $9 million, and $14 million. After the...
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $4 million, $7 million, $8 million, and $16 million. After the...