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3. Super Company stock is selling for $200 per share which you believe is greatly undervalued. So you are considering making an offer for all
| 3. Super Company stock is selling for $200 per share which you believe is greatly undervalued. So you are considering making an offer for all | ||||
| of the Super stock. You have estimated Super's free cash flow for the next 5 years shown below, and you expect FCF to grow 3% per year | ||||
| beyond that 5 year horizon. You note that the company has $1,500,000 of outstanding debt and a required rate of return of 15%. | ||||
| A. Based on this information is Super Company's stock undervalued? | ||||
| INPUT AREA | ||||
| YEARS | FREE CASH FLOW ($000) | |||
| 1 | 1880 | |||
| 2 | 2247 | |||
| 3 | 2650 | |||
| 4 | 2949 | |||
| 5 | 3198 | |||
| g2 | 3.0% | |||
| R | 15.0% | |||
| Debt book value | $1,500 | |||
| Debt market value | $2,000 | |||
| Shares (thousands) | 100 | |||
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