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A stock has no dividends. Last period’s FCFE is $5.07 and it has an estimated annual...

A stock has no dividends. Last period’s FCFE is $5.07 and it has an estimated annual free cash flow growth rate of 7.7%. The company should maintain this growth rate for 3 more years before it decays to the estimated long term growth rate of 2.46%. The required return for this stock is 12.8% and its current ROE is 36.6%. What it the estimated intrinsic value using the multistage FCFE method? State your answer as a dollar amount with two decimal places and use the adjusted method as shown in the textbook.

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Answer #1

Intrinsic Value = PV Cash Flow + PV Horizon Value

Intrinsic Value = 5.07(1.077/1.128) + 5.07(1.077/1.128)2 + 5.07(1.077/1.128)3 + 5.07(1.077)3(1.0246)/(0.128 - 0.0246)(1.128)3

Intrinsic Value = 4.84 + 4.62 + 4.41 + 43.73

Intrinsi Value = $57.60 million

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