Question

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. Year 2 3 4 FCF -$22.38 $37.5 $43.3 $51.5 $55.6 The weighted average cost of capital is 12 %, and the FCFS are expected to continue growing at a 5% rate after Year 5. The firm has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 21 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations. $ per share According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock The statement above is -Select-

Answer 1

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NPV, IRR, PBP,OCFINDEX - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Calibri A = = = 11 B- A A B I U V Wrap Text General SF Merge Merge & Center - Center $ -% % Alignment CD Number 4:0 .00 . Insert Delete Format E Copy Paste Format Painter Clipboard MY40 Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells Font fx MX MY MZ MZ NA NA NB NB NC NC | ND ND NE NH NG | NH NI NJ 23 24 25 - 1 -22.38 2 37.50 3 43.30 4 51.50 26 27 5 55.60 834.00 TERMINAL VALUE = FCF5(1+g)/WACC-g 889.60 [55.6*(1+0.05)/(0.12-0.05)] 0.5674 504.78 FCF TERMINAL VALUE TOTAL CASH FLOW PV FACTOR @ 12% PV OF CF 28 29 30 -22.38' 0.8929 -19.98 37.50' 0.7972 29.89 43.30' 0.7118 30.82 51.50 0.6355 32.73 578.24 (SUM OF PV OF CF) ENTERPRISE VALUE = CASH DEBT VALUE OF EQUITY SHARE PRICE OF STOCK 26 552.24 26.30 552.24/21 = 31 32 33 34 35 36 ANS 1 37 38 ANS 2 39 40 41 O Rea FALSE H FCFARM, MSI,confidenceINDEX CURRENCY LOAN CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST CF CASH FLOW STATW ferences: EV49 PREF AND DIV POLICY I BOU 130% 0 . B 9 . * . 40 ENG 19-11-2019