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This 1 page Class Notes was uploaded by Ms. Hal Hegmann on Thursday October 29, 2015. The Class Notes belongs to FIN418 at Wright State University taught by Staff in Fall. Since its upload, it has received 13 views. For similar materials see /class/231084/fin418-wright-state-university in Finance at Wright State University.
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Date Created: 10/29/15
FCF Stock Valuation A company forecasts the following free cash ows If the overall cost of capital is 13 and the free cash ows are expected to continue growing at the same rate of growth as that exhibited between years 2 and 3 after year 3 what is the current value of operations Year 1 2 3 Free Cash Flow 20 40 42 HORIZON VALUE CF4 421 105 55125 WACCG 13 05 The value of the operations the present value of the expected free cash ows CFO 0 C01 20 CO2 40 C03 42 55125 59325 I WACC 13 NPV 42478 If this same company has a balance sheet showing 30 million in marketable securities 40 million in accounts payable 150 million in long term debt 20 million in notes payable 30 million in preferred stock and 90 million in total common equity with 1500000 shares outstanding what is your best estimate of the stock price per share To find the value per share we must first find the value of the corporation and the subtract all priority claims from that So Value of the corporation value of operations value of nonoperating assets 42478 30 in marketable securities 45478 Priority claims are any investor claims that must be paid before the stock holders so long term debt notes payable and preferred stock are all priority claims Accounts payables and accruals have already been accounted for in the calculation of FCF so will not be taken out again here Value ofthe equity 45478 7 20 7 30 7 150 25478 Value per share this value of the equity divided by shares outstanding 16985