Let’s start with the simplest valuation model available to us: the perpetuity formula. Suppose you expect...
- Let’s start with the simplest valuation model available to us: the perpetuity formula.
Suppose you expect a company to generate FCF to the Firm of $100m next year, expect it to grow at a sustainable growth rate of 2.5%, and believe that it has a Weighted Average Cost of Capital (WACC) of 5%.
You also know that this firm has $1,500m in debt outstanding, and that there are 100 shares of its stock outstanding.
- What is the value of this firm using the assumptions provided above, and what is the value of equity implied by your estimate?
Homework Answers
Expected FCF = FCF1 = $ 100 million, Growth Rate = g = 2.5 % and Weighted Average Cost of Capital (WACC) = 5 %
Debt = $ 1500 million and Number of Shares Outstanding = N = 100 mllion
Firm Value = FCF1 / (WACC - g) = 100 / (0.05 - 0.025) = $ 4000 million
Equity Value = 4000 - 1500 = $ 2500 million
Share Price = 2500 / 100 = $ 25
Add Answer to:
Let’s start with the simplest valuation model available to us:
the perpetuity formula.
Suppose you expect...
9-7a Corporate Valuation Model A firm has $20 million of debt and $30 million of preferred...
9-7a Corporate Valuation Model A firm has $20 million of debt and $30 million of preferred stock. It has an expected free cash flow (FCF) of $3 million at the end of period I and $20 million at the end of period 2. The period 3 end FCF is expected to be S 10 million and is then expected to grow at a rate of490 in perpetuity. The WACC is 11%. If there are 2 million shares outstanding, what is...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings,...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash flows: Market value of company FCF (1+WACC) + FCF (1+WACC)...
4. Corporate valuation model The corporate valuation model, the price to earnings (P/E) multiple approach, and...
4. Corporate valuation model The corporate valuation model, the price to earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model...
10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic...
10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Blur Corp....
8. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic...
8. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Stay Swift...
Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value...
Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Charles Underwood Agency...
10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic...
10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you’ve done in previous problems, but it focuses on a firm’s free cash flows (FCFs) instead of its dividends. Some firms don’t pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Tropetech Inc....
11. More on the corporate valuation model Praxis Corp. is expected to generate a free cash...
11. More on the corporate valuation model Praxis Corp. is expected to generate a free cash flow (FCF) of $11,090.00 million this year (FCF1 = $11,090.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF, and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF). Assume the firm has no nonoperating assets. If Praxis...
11. More on the corporate valuation model Smith and T Co. is expected to generate a...
11. More on the corporate valuation model Smith and T Co. is expected to generate a free cash flow (FCF) of $6,435.00 million this year (FCF, = $6,435.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets....
5. More on the corporate valuation model Omni Consumer Products Co. is expected to generate a...
5. More on the corporate valuation model Omni Consumer Products Co. is expected to generate a free cash flow (FCF) of $4,560.00 million this year (FCF₁ = $4,560.00 million), and the FCF is expected to grow at a rate of 22.60% over the following two years (FCF₂ and FCF₃). After the third year, however, the FCF is expected to grow at a constant rate of 3.18% per year, which will last forever (FCF₄). Assume the firm has no nonoperating assets....
9-7a Corporate Valuation Model A firm has $20 million of debt and $30 million of preferred stock. It has an expected free cash flow (FCF) of $3 million at the end of period I and $20 million at the end of period 2. The period 3 end FCF is expected to be S 10 million and is then expected to grow at a rate of490 in perpetuity. The WACC is 11%. If there are 2 million shares outstanding, what is...
Basic Stock Valuation: Free Cash Flow Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an alternative stock valuation approach, known as the free cash flow valuation model. The market value of a firm is equal to the present value of its expected future free cash flows: Market value of company FCF (1+WACC) + FCF (1+WACC)...
4. Corporate valuation model The corporate valuation model, the price to earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model...
10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Blur Corp....
11. More on the corporate valuation model Praxis Corp. is expected to generate a free cash flow (FCF) of $11,090.00 million this year (FCF1 = $11,090.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF, and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCF). Assume the firm has no nonoperating assets. If Praxis...
11. More on the corporate valuation model Smith and T Co. is expected to generate a free cash flow (FCF) of $6,435.00 million this year (FCF, = $6,435.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets....
Most questions answered within 3 hours.
-
How is Lasik Method useful to measure the respiration rate of
plants?
asked 3 minutes ago -
If GDP is currently $300 and the growth rate is 5 percent, how
many years will...
asked 4 minutes ago -
All in C please~
#1 Consider this program:
#include <stdio.h>
int main () { /* main...
asked 5 minutes ago -
The number of claims for lost luggage in a small city airport
averages 8 per day....
asked 42 minutes ago -
I need this code in java.
Loops do just what they sound like they should -...
asked 21 minutes ago -
if the plasmid concentration is 100 ng/ul how much ul need to be
added to the...
asked 23 minutes ago -
Your company wants to raise $11.0 million by issuing 30-year
zero-coupon bonds. If the yield to...
asked 44 minutes ago -
Determine the pressure exerted by 3.99 mol of gas in a 2.92-L
container at 32oC
asked 24 minutes ago -
Riverbed Corp purchased a new blending machine for $3,050.01. It
paid $520.22 down and financed the...
asked 34 minutes ago -
Explain what is involved in pursuing a policy of
nondiscrimination.
asked 27 minutes ago -
A company faces an inverse demand curve of p = 17 − 2Q and its
cost...
asked 41 minutes ago -
Radio waves, from your favorite radio station has a frequency of
( 89.3) MHz (megahertz). What...
asked 46 minutes ago