Question
11 Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs
11 Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. What is the firm's value of operations, in Year 0, in millions?
Year: | 1 | 2 | 3 |
Free cash flow: | -$15 | $10 | $40 |
Type in the answer below
- Based on the value of operations calculated in #11 please use the following information to calculate the company's intrinsic price per share and answer the questions below:
Accounts Receivable = $8 million
Inventory = $6 million
Short-term Investments (unrelated to operations) = $10 million
Accounts Payable = $9 million
Notes Payable = $12 million
Long-term Debt = $30 million
Preferred Stock = $5 million
Retained Earnings = $18 million
Total Common Equity = $8 million
- Number of shares outstanding = 5 million
(1) What is the calculated intrinsic price per share?
(2) If the current market price of the stock is $55 per share, explain if the company is fairly-, over-, or under-valued.
Type in the answer below.
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