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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

  1. 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:

  1. The enterprise value.
  2. Equity value.
  3. Equity value per share.
  4. Based on your estimate, should investors buy the share of this company? Justify your choice.

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