This question has two parts.)

It is 2020. You are investigating the possibility of making an equity investment in Walkerville Woodworking Inc., a firm that specializes in producing antique-style furniture with a modern twist. Your research has revealed the following information:

Walkerville has $8 million in excess cash and $4.5 million in debt.

The company is expected to have free cash flow of $28 million in 2021 and $35 million in 2022.

Beyond 2022, free cash flow is expected to grow at a constant rate of 2% per year forever.

Walkervilles weighted average cost of capital (WACC) is 11% and it has 7 million shares outstanding.

Question A: (5 points)

What is the current enterprise value of Walkerville Woodworking given the above assumptions?

A.

$379.08 million

B.

$375.58 million

C.

$340.86 million

D.

$349.14 million

E.

$414.11 million

Question B: (5 points)

What should be the price of one share of Walkerville stock?

A.

$54.15

B.

$49.88

C.

$59.66

D.

$48.19

E.

$53.15