Question

Keep the Highest: 0/2 0 Attempts: Attention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more. 11. More on the corporate valuation model Aa Aa Omni Consumer Products Co. is expected to generate a free cash flow (FCF) of $11,255.00 million this year (FCF, $11,255.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF2 and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.10 % per year, which will last forever (FCF4). Assume the firm has no nonoperating assets. If Omni Consumer Products Co.'s weighted average cost of capital (WACC) is 6.30%, what is the current total firm value of Omni Consumer Products Co.? O $35,709.95 million O $429,928.96 million O $423,160.19 million O $358,274.13 million Omni Consumer Products Co.'s debt has a market value of $268,706 million, and Omni Consumer Products Co. has no preferred stock. If Omni Consumer Products Co. has 750 million shares of common stock outstanding, what is Omni Consumer Products Co.'s estimated intrinsic value per share of common stock? $358.27 O $119.42 O $118.42 $131.37

Answer 1

1)

FCF2 = 11255 (1 + 19%) = 13,393.45

FCF3 = 13,393.45 (1 + 19%) = 15,938.2055

FCF4 = 15,938.2055 (1 + 2.1%) = 16,272.90782

Value at year 3 = FCF4 / required rate - growth rate

Value at year 3 = 16,272.90782 / 0.063 - 0.021

Value at year 3 = 16,272.90782 / 0.042

Value at year 3 = 387,450.1862

Total value = 11,255 / (1 + 0.063)¹ + 13,393.45 / (1 + 0.063)² + 15,938.2055 / (1 + 0.063)³ + 387,450.1862 / (1 + 0.063)³

Total value = $358,274.13 million

2)

Intrinsic value per share = (358,274.13 - 268,706) / 750

Intrinsic value per share = $119.42