Question
Dely Company has decided to go public, and the initial public offering (IPO) price is determined as $55. The estimated data for the free cash
Dely Company has decided to go public, and the initial public offering (IPO) price is determined as $55. The estimated data for the free cash flow valuation model are given below:
| Year | 2019 | 2020 | 2021 |
| FCFt | $500,000 | $600,000 | $750,000 |
The growth rate of FCF, beyond 2021 to infinity, g = 3%. The weighted average cost of capital is calculated as 9%. The market value of debt is $1,000,000, and the market value of the preferred stock is $500,000. The company has 100,000 shares of stock outstanding.
a) What is the value of Dely's stock, P2018?
b) Would you buy or sell this stock in the market? Why?
Step by Step Solution
3.37 Rating (147 Votes )
There are 3 Steps involved in it
Step: 1
a To calculate the value of Delys stock P2018 we need to discount the future cash flows to their pre...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Principles of Managerial Finance
Authors: Chad J. Zutter, Scott B. Smart
15th edition
013447631X, 134476315, 9780134478197 , 978-0134476315
