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 youve done in previous problems, but it focuses on a firms free cash flows (FCFs) instead of its dividends. Some firms dont pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model.

Tropetech Inc. has an expected net operating profit after taxes, EBIT(1 T), of $1,200 million in the coming year. In addition, the firm is expected to have net capital expenditures of $180 million, and net operating working capital (NOWC) is expected to increase by $15 million. How much free cash flow (FCF) is Tropetech Inc. expected to generate over the next year?

A) $18,490 million

B) $1,005 million

C) $1,035 million

D) $1,365 million

Tropetech Inc.s FCFs are expected to grow at a constant rate of 4.62% per year in the future. The market value of Tropetech Inc.s outstanding debt is $4,894 million, and its preferred stocks value is $2,719 million. Tropetech Inc. has 225 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 13.86%.

Term	Value (Millions)
Total firm value
Intrinsic value of common equity
Intrinsic value per share

Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table. Assume the firm has no non-operating assets.

11. More on the corporate valuation model

Widget Corp. is expected to generate a free cash flow (FCF) of $15,175.00 million this year (FCF = $15,175.00 million), and the FCF is expected to grow at a rate of 25.00% over the following two years (FCF and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 3.90% per year, which will last forever (FCF). Assume the firm has no non-operating assets. If Widget Corp.s weighted average cost of capital (WACC) is 11.70%, what is the current total firm value of Widget Corp.? (Note: Round all intermediate calculations to two decimal places.)

A) $45,801.94 million

B) $361,643.86 million

C) $272,428.21 million

D) $326,913.85 million

Widget Corp.s debt has a market value of $204,321 million, and Widget Corp. has no preferred stock. If Widget Corp. has 600 million shares of common stock outstanding, what is Widget Corp.s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.)

A) $340.54

B) $124.86

C) $113.51

D) $112.51