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25 October, 07:33

You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

a. $40.35

b. $41.82

c. $43.33

d. $44.85

e. $46.42

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  1. 25 October, 10:03
    0
    C. $43.33

    Explanation:

    FCF1 = $75.00

    Constant growth rate = 5%

    WACC = 10%

    Total firm value = FCF1 / (WACC-g) = $1,500

    Value of debt & preferred=$200

    Value of equity = $1,300

    # of shares = 30

    Value per share = equity value / shares = $43.33
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