Portage Bay Enterprises has $1 million in excess cash, no debt, and is expected to have...

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Portage Bay Enterprises has $1 million in excess cash, no debt, and is expected to have free cash flow of $10 million next ye

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Answer 1

Answer #1

The present value of future free cash flow can be calculated as:

Next cash flow Present value = 7 Required return - Growth

Present value = 10 0.13-0.02

Present value = 90.91

The firm has $1 million in cash.

The total equity value of the firm will be ($90.91 million + $1 million) = $91.91 million.

The total number of shares outstanding is 6 million.

Stock price = 91.91 6

Stock price = 15.32 Rounded to nearest cent.

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Answer 2

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