Question
Corporate value model Assume that today is December 31, 2016, and that the following information applies to Abner Airlines: After-tax operating income [EBIT(1 - T)]
Corporate value model
Assume that today is December 31, 2016, and that the following information applies to Abner Airlines:
After-tax operating income [EBIT(1 - T)] for 2017 is expected to be $550 million. The depreciation expense for 2017 is expected to be $140 million. The capital expenditures for 2017 are expected to be $200 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 5% per year. The required return on equity is 16%. The WACC is 10%. The market value of the company's debt is $5 billion. 130 million shares of stock are outstanding.
Using the corporate valuation model approach, what should be the company's stock price today?
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