9. 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 prefer to use the corporate valuation model, which maintains that the value of a corporation is a function of its free cash flows, weighted average cost of capital (WACC), and expected rate of growth.

Consider the following case:

Blue Pencil Publishing has an expected net operating profit after taxes, EBIT x (1 Tax rate), of $17,400,000 in the coming year. In addition, the firm is expected to have net capital expenditures of $2,610,000, and the firm's net operating working capital (NOWC) is expected to increase by $10,000. Blue Pencil expects to generate---------- in free cash flow (FCF) over the next year (rounded to the nearest whole dollar).

Blue Pencils FCFs are expected to grow at a constant rate of 3.84% per year in the future. The market values of Blue Pencils outstanding debt and preferred stock are $86,601,563 and $48,111,979, respectively. Blue Pencil Publishing has 150,000 shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 11.52%.

Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table (again, rounded to the nearest whole dollar).

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