Question

Attempts: Average: 12 11. More on the corporate valuation model Smith and T Co. is expected to generate a free cash flow (FCF) of $6,090.00 million this year (FCF, - $6,090.00 million), and the FCF is expected to grow at a rate of 20,20% over the following two years (FCF, and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 2.46% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets. If Smith and T Co.'s weighted average cost of capital (WACC) is 7.38%, what is the current total firm value of Smith and T Co.? (Note: Round all intermediate calculations to two decimal places.) $19,126.52 million $200,545.14 million $167,120.95 million $202,364.53 million Smith and T Co.'s debt has a market value of $125,341 million, and Smith and T Co. has no preferred stock. If Smith and T Co. has 450 million shares of common stock outstanding, what is Smith and T Co.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $278.54 $92.84 $102.13 $91.84

Answer 1

	0	1	2	3	4
FCF		$      6,090.00	$      7,320.18	$         8,798.86	$    9,015.31
PVIF at 7.38% [PVIF = 1/1.0738^t]		0.93127	0.86727	0.80766
PV at 7.38%		$      5,671.45	$      6,348.56	$         7,106.50
Sum of PV of FCF, t1 to t3	$     19,126.51
Continuing value of FCF = 9015.31/(0.0738-0.0.246) =				$   1,83,238.01
PV of continuing value = 183238.01*0.80766 =	$ 1,47,994.43
Current firm value	$ 1,67,120.94	Answer is $167,120.95 [Difference due to approximation]
Less: Market value of debt	$ 1,25,341.00
Value of equity	$     41,779.94
# shares in millions	450
Value per share of common stock	$             92.84