3. Fundamentals of the free cash flow corporate valuation model Aa Aa E Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF) valuation model, while the another method uses the dividend discount model. The FCF valuation model computes a firm's intrinsic value-also called its entity value-as the sum of the value of its operating activities (Vop) and the value of firm's nonoperating assets , where: From a manager's perspective, an important difference between a firm's operating assets and its nonoperating assets is that its operating assets are more strongly influenced by their decisions and actions than by market conditions. The company's intrinsic value can be computed and expressed for the organization as a whole, for a component of the company, or on a per-share basis. The per-share intrinsic value of the firm's equity is calculated by dividing the intrinsic value of the equity by the number of preferred shares outstanding . Consider the case of Flying Cow Aviation: Next year, Flying Cow is expected to earn an EBIT of $13,000,000, and to pay a federal-plus-state tax rate of 35%. It also expects to make $3,250,000 in new capital expenditures to support this level of business activity, as well as $50,000 in additional net operating working capital (NOWC). Given these expectations, it is reasonable to conclude that next year Flying Cow will generate an annual free cash flow (FCF) of $5,922,500 (rounded to the nearest whole dollar). Next, based on your estimate of Flying Cow's next year's FCF and making the stated assumptions, complete the following table: Value Flying Cow can sustain this annual FCF forever, the company has a weighted average cost of capital of 16.02%, Attributes of Flying Cow Total Entity Value Value of Common Equity Intrinsic value (per share) [ the market value of debt and preferred stock are $14,466,292 and $8,036,829 respectively, the company does not currently own any marketable securities, and there are 75,000 shares of Flying Cow outstanding