CHAPTER 8 (12 PTS)

Consider the case of Happy Fliers Aviation Inc.:

Happy Fliers Aviation Inc. is expected to generate a free cash flow (FCF) of $1,170,000 this year, and the FCF is expected to grow at a rate of 16% over the following two years (FCF22 and FCF33). After the third year, however, the companys FCFs are expected to grow at a constant rate of 7% per year, which will last forever (FCF4 - 4 - ). If Happy Flierss weighted average cost of capital (WACC) is 14%, complete the following table and compute the current value of Happy Flierss operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year.

Year	CFtt	PV(FCFtt)
FCF11	$1,170,000	?
FCF22	?	?
FCF33	?	?
FCF44	?	?
Horizon Value4- 4-	?	?
	Vopop =	?

Happy Flierss debt has a market value of $14,532,403, and Happy Fliers has no preferred stock in its capital structure. If Happy Fliers has 200,000 shares of common stock outstanding, then the total value of the companys common equity is ______________ and the estimated intrinsic value per share of its common stock is ______________per share (rounded to the nearest dollar).

Assume the following:

	The end of Year 3 differentiates Happy Flierss short-term and long-term FCFs.
	Professionally-conducted studies have shown that more than 80% of the average companys share price is attributable to long-termrather than short-termcash flows.

Is the percentage of Happy Flierss expected long-term cash flows consistent with the value cited in the professional studies?

- No, because the percentage of Happy Flierss expected long-term cash flows is actually 16.17%.

- Yes, because 73.77% of the firms share price is derived from its expected long-term free cash flows.

- Yes, because 83.83% of the firms share price is derived from its expected long-term free cash flows.

- No, because only 56.60% of the firms share price is derived from its expected long-term free cash flows.