Question
Consider a company that is financing an expansion, with the expansion financed by the owners. Projected free cash flows are -$25 million in year 1,
Consider a company that is financing an expansion, with the expansion financed by the owners. Projected free cash flows are -$25 million in year 1, +$10 million in year 2, +30 million in year 3, and +$50 million in year 4. After year 4, the cash flows are expected to grow at a constant rate of 6%. For the company, the weighted average cost of capital is 14%, short-term investments for the company are $80 million, company debt is at $150 million, the amount of preferred stock is at $30 million, and there are 5 million shares outstanding. A.) Using a free cash flow valuation approach, what is the value from operations for the company? B.) What is the total intrinsic value of the company? C.) What is the estimated intrinsic value of the equity? D.) What is the estimated intrinsic stock price per share?
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