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After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $550 million. The depreciation...

After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $550 million.

The depreciation expense for 2020 is expected to be $60 million.

The capital expenditures for 2020 are expected to be $450 million.

No change is expected in net operating working capital.

The free cash flow is expected to grow at a constant rate of 3% per year.

The required return on equity is 15%.

The WACC is 9%.

The firm has $209 million of non-operating assets.

The market value of the company's debt is $2.651 billion.

310 million shares of stock are outstanding.

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Answer #1

EBIT(1-T) = $550 million

Add: Depreciation Expense (non-cash) = $60 million

Less: Capital Expenditure = $450 million

Free cash flow = $160 million

Present value of free cash flows = Expected Free cash flow next year/(WACC – growth rate)

= 160 million/(9%-3%)

= $2666.67 million

Add: Non-operating assets = $209 million

Less: Value of debt = $2651 million

Value of Equity = $224.67 million

Number of shares = 310 million

Price per share = $0.7247

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