Homework: Chapter $7-$ Stock Valuation

Question $7,$ P$7-18($similar to$)$

HW Score: $50\%,4$ of $8$ points

$($HW$)$

Part $1$ of $6$

Points: $0$ of $1$

Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $$2\mathrm{.}74$ per share. Although you are very much interested in owning the company, you are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are summarized in the following table, $||.$

a$.$ Use the free cash flow valuation model to estimate CoolTech's common stock value per share.

b$.$ Judging by your finding in part a and the stock's offering price, should you buy the stock?

c$.$ On further analysis, you find that the growth rate in FCF beyond year $4$will be $5$P$/$ther than $4\%$hat effect would this finding have on your responses in parts a and b$?$

a$.$ The value of CoolTech's entire company is $ $($Round to the nearest dollar.$)$

Data table

$($Click on the icon here $$ in order to copy the contents of the data table below into a spreadsheet.$)$

$\backslash$table$[[$Free cash flow,$],[$Year $(t),$FCF$,$Other data$],[1,$$$680,000,$Growth rate of FCF$,$ beyond year $4=4\%],[2,$$$820,000,$Weighted average cost of capital $=14\%$