Question
SCENARIO 9-2 An analyst has put together the following spreadsheet to estimate the intrinsic value of the stock of Rangan Company (in millions of dollars):
SCENARIO 9-2An analyst has put together the following spreadsheet to estimate the intrinsic value of the stock of Rangan Company (in millions of dollars):
t = 1 | t = 2 | t = 3 | |
Sales | $3,000 | $3,600 | $4,500 |
NOPAT | 500 | 600 | 750 |
Net investment in operating capital* | 300 | 400 | 500 |
*Net investment in operating capital = Capital expenditures + Changes in net operating capital -Depreciation.After Year 3 (t = 3), assume that the company's free cash flow will grow at a constant rate of 7% a year and the company's WACC equals 11%. The market value of the company's debt and preferred stock is $700 million. The company has 100 million outstanding shares of common stock.
Using the free cash flow model, what is the intrinsic value of the company's stock today?
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