Hectoritis Corporation currently has a free cash flow (FCF) of $13 million. A reputable analyst estimates that

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Hectoritis Corporation currently has a free cash flow (FCF) of $13 million.

A reputable analyst estimates that this FCF is anticipated to increase by 12%

per year for the next 5 years. The analyst estimates that at the end of 5 years the company’s terminal value will be based on the year 5 FCF and a longterm FCF growth rate of 4%. Suppose the Hectoritis β = 1.5, the rf

= 3%, the market risk premium E r( ) M –rf

= 14%, and Hectoritis has 8 million shares outstanding. How should the analyst value the shares of the company?
Assume all cash flows occur at year-end.

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Principles Of Finance Wtih Excel

ISBN: 9780190296384

3rd Edition

Authors: Simon Benninga, Tal Mofkadi

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