09. Blueprint Problems - Stocks and Their Valuation the second problem, we assume that the firm has a period or nonconstant growth. Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating Income (EBIT(1 - 1)) will be $450 million and its 2020 depreciation expense will be $70 millon. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $25 million. The firm's free cash now is expected to grow at a constant rate of 5.5% annually. Assume that its free cash now occurs at the end of each year. The firm's weighted average cost of capital is 8.2%; the market value of the company's debt is $2.1 billion; and the company has 190 milion shares of common stock outstanding, The firm has no preferred stock on ts balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not found intermediate calculations. Round your answer to the nearest per share Quantitative Problem 2t Hadley foc forecasts the year-end free cash flows (in millions) shown below. cent $ 5 Year FCF $ -$225 $38.8 $43.9 $52.2 $55.9 The weighted average cost of capital is 12%, and the FCBs are expected to continue growing at a 3% rate after years. The firm has $25 million of market value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)7 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 on 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 Conclusions Analysts use both the encounted dividend model and the corporate valuation model when valuing mature, dividend paying rems; and they generally use the corporate model when valuing divisions and firms that do not pay dividends. In principle, we should find the same intrinsic value using either model, but differences are one observed Even if a company is paying steady dividends, much can be learned from the corporate model; so analysts today use it for all types of valuations. The process of projecting future financial statements can reveal a great deal about a company's operations and financing needs. Also, such an analysis can provide insights into actions that might be taken to increase the company's value and for this reason, it is integral to the planning and forecasting process Quantitative Problem 1: Assume today Is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating Income (EBIT(1 - 1)] will be $450 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 wil be $25 million. The firm's free cash flow is expected to grow at a constant rate of 5.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 6.2%; the market value of the company's debt is $2.1 billon; and the company has 190 million shares of common stock outstanding, The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 201977 Do not round intermediate calculations, Round your answer to the nearest cent $ Year $ per share Quantitative Problem 2. Hadley Ine. forecasts the year-end free cash flows (in millions) shown below. 2 3 5 FCF -$22.5 538.8 $43.95522 55.9 The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 34 rate after years. The firm has $25 millon of market value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. Also, the firm has zero non operating assets. What in the value of the stock price today (year 07? 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 B Conclusions Analysts use both the discounted dividend model and the corporate valuation model whan valuing mature, dividend paying firms, and they generally use the corporate model when valuing divisions and firms that do not pay dividends. In principle, we should find the same intrinsic value using the model, but differences are often observed Even if a company is paying Meedy dividends, much can be learned from the corporate model so analysts today use it for all types of valuations. The process of projecting ure Tinancial statements can reveal a great deal about a company's operations and financing needs. Also, such an analysis can provide insights into actions that might be taken to increase the company's value; and for this reaton, it is integral to the planning and forecasting process
