Question
A security analyst estimated that Kennesaw Corp. free cash flows to the firm over the next two years will be $154 million and 196 million,
A security analyst estimated that Kennesaw Corp. free cash flows to the firm over the next two years will be $154 million and 196 million, respectively. The estimates of free cash flow to the equity over the next two years are: $125 million and $143 million, respectively. The analyst estimates of the required rate of return on equity using the CAPM is 16% and the weighted average cost of capital is 12%. The analyst also forecasts that both the free cash flows to the firm and free cash flows to equity should grow constantly at a rate of 6% after the second year. With the above estimates, the analyst value for the equity is:
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