Question
The free cash flows (in millions) shown below are forecast by Simmons Inc. Year: 1 2 3 Free cash flow: -$25 $50 $55 respectively. If
The free cash flows (in millions) shown below are forecast by Simmons Inc. Year: 1 2 3 Free cash flow: -$25 $50 $55 respectively. If the weighted average cost of capital is 12% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions? The balance sheet shows $25 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of short-term debt, $25 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. Simmons Inc. has 10 million shares of stock outstanding. What is the best estimate of the stocks price per share?
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