Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribedimage text in transcribed

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 $15.56 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 6% rather than 5%. What 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.) 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 $15.56 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, 5 Data Table a. Use the free cash flow valuation model to estimate Co b. Judging by your finding in part a and the stock's offeri c. On further analysis, you find that the growth rate in FC a. The value of CoolTech's entire company is $. (Roy (Click on the icon here e in order to copy the contents of the data table below into a spreadsheet.) FCF Free cash flow Year (t) 1 $740,000 2 $890,000 3 $1,030,000 4 $1,130,000 Other data Growth rate of FCF, beyond year 4 = 5% Weighted average cost of capital = 9% Market value of all debt = $4,810,000 Market value of preferred stock = $1,920,000 Number of shares of common stock outstanding = 1,100,000 Print Done

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance A Quantitative Introduction

Authors: Nico Van Der Wijst

1st Edition

1107029228, 978-1107029224

More Books

Students also viewed these Finance questions

Question

Describe how to train managers to coach employees. page 422

Answered: 1 week ago