Chapter: $7$ Valuation of Stocks and Corporations

DUE ON FEB. $11$

Selected data for the ABC Corporation are shown below. Use the data to answer the following questions.

Assume growth becomes constant $(5\%)$ after Year $4.$

INPUTS $($In millions$)$ Year

Current Projected

$01234$

Free cash flow $-$$$20\mathrm{.}0$ $$20\mathrm{.}0$ $$60\mathrm{.}0$ $$84\mathrm{.}0$

Marketable Securities $$40$

Notes payable $$100$

Long$-$term bonds $$300$

Preferred stock $$50$

WACC $9\mathrm{.}00\%$

Number of shares of stock $40$

a$.$ Calculate the estimated horizon value at the end of Year $4($i$.$e$.,$ the value of operations at the end of the forecast period immediately after the Year$-4$ free cash flow$).$ Assume growth becomes constant $(5\%)$ after Year $4.$

Current Projected

$01234$

Free cash flow $-$$$20\mathrm{.}0$ $$20\mathrm{.}0$ $$60\mathrm{.}0$ $$84\mathrm{.}0$

Long$-$term constant growth in FCF after year $45\mathrm{.}0\%$

Horizon value $($HV$4)$ at Year $4$ $$2,205\mathrm{.}00$

b$.$ Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year$-0$ value of operations.

PV $($at Year$-0)$ of horizon value $($HV$4)($$$1,562\mathrm{.}08)$ why $-$

PV $($at Year$-0)$ of FCF Year $1-4$ $$104\mathrm{.}32$

Value of operations $($PV of FCF for year $1-4+$ PV of HV$4)($$$1,457\mathrm{.}75)1,666\mathrm{.}4$

c$.$ Calculate the estimated Year$-0$ price per share of common equity.

Value of operations $?$

Plus value of marketable securities $?$

Total value of company $?$

Less value of debt $$400\mathrm{.}00($note payable$+$long$-$term bond$)$

Less value of preferred stock $?$

Estimated value of common equity $?$

Divided by number of shares $?$

Price per share $?$