Hide Feedback Correct Check My Work Feedback Realize that the correct valuation model is the corporate valuation model. Realize that the firm's non-operating assets equal zero. Realize that this example involves constant growth. Because the firm is in a constant growth state, this calculation is actually the value of the firm's operations in Year 0. Once the value of the firm is determined, you must subtract the market value of the firm's debt and preferred to calculate the market value of the firm's equity. Then divide this value by the number of common shares outstanding to find the per-share value of the firm's common stock. Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. 1 2 3 4 5 -$22.27 $37.4 $43.5 $52.3 $56.6 The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $24 million of market value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations. $ per share Year FCF According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock. The statement above is false D Conclusions Analysts use both the discounted dividend model and the corporate valuation model when valuing mature, dividend-paying firms; and they generally use the corporate model when valuing divisions and firms that do not pay dividends. In principle, we should find the same intrinsic value using either model, but differences are often observed. Even if a company is navion steady daldands much can he learned from the corporate model: so analysts today use it for all types of valuations. The process