Question
A companys free cash flow last year was $200 million. You estimate that the companys free cash flow will increase 40% in the coming year
A companys free cash flow last year was $200 million. You estimate that the companys free cash flow will increase 40% in the coming year (year 1) and that its free cash flow will grow 30% in year 2, 25% in year 3, 20% in year 4 and 10% in year 5. After that, you think that the best assumption is that the companys free cash flow will grow at a constant rate of 5%. The companys weighted average cost of capital (WACC) is 12%. The company has 250,000 bonds outstanding; their par value is $1,000 and they are currently selling for $900 per bond. The company has 80 million shares of stock outstanding. a. What is the total value of the company? b. What is the value of one share of the companys stock?
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