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Determining the price of an IPO is challenging with no existing public market price for the shares. One method to determine the price is the

Determining the price of an IPO is challenging with no existing public market price for the shares. One method to determine the price is the present value of the FCF. Use the following data for each of question 1 through 4 below, to calculate a theoretical stock price for the IPO of ABC Corp. The model is based on five years of forecasts + a terminal value. The firms discount rate is 7%. Free cash flow (FCF) is estimated for Year 0 at $125 million. FCF is estimated to grow at 17.5% per year for the first five years. Calculate the PV of the FCF for each of years 1, 2, 3, 4 and 5 individually (Label the year, provide the FCF and then provide the PV of the FCF).

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