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At the beginning of its fiscal year 2020, an analyst made the following forecast for ABC, Inc. (in millions of dollars): 2020 2021 2022 2023
- At the beginning of its fiscal year 2020, an analyst made the following forecast for ABC, Inc. (in millions of dollars):
| 2020 | 2021 | 2022 | 2023 |
Cash flow from operation | $1,225 | $4,320 | $2,985 | $3,830 |
Cash investment | 695 | 930 | 365 | 990 |
ABC did not have any short-term and long-term debt at the end of 2020. Assume that free cash flow will grow at 3 percent per year in 2024 and 2025, after that this will grow at 2 percent per year. ABC had 250 million shares outstanding at the end of 2020, trading at $130.65 per share. Using a required return of 10 percent, calculate the following for GM at the beginning of 2020:
- The enterprise value.
- Equity value.
- Equity value per share.
- Based on your estimate, should investors buy the share of this company? Justify your choice.
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