70.2K

Verified Solution

Link Copied!

answer please

5. The multi-stage valuation model Aa Aa E Consider the case of Purple Panda Pharmaceuticals Inc.: Purple Panda Pharmaceuticals Inc. is expected to generate a free cash flow (FCF) of $460,000 this year, and the FCF is expected to grow at a rate of 14% over the following two years (FCF, and FCF). After the third year, however, the company's FCFs are expected to grow at a constant rate of 6% per year, which will last forever (FCFA ..). If Purple Panda's weighted average cost of capital (WACC) is 12%, complete the following table and compute the current value of Purple Panda's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year, CF. PVTECE $460,000 Year FCF FCF2 FCF ON N FCF Horizon Value Purple Panda's debt has a market value of $6,578,764, and Purple Panda has no preferred stock in structure. If Purple Panda has 500,000 shares of common stock outstanding, then the total value common equity is , and the estimated intrinsic value per share of its common stock per share. Assume the following: The end of Year 3 differentiates Purple Panda's short-term and long-term FCFS. Professionally-conducted studies have shown that more than 80% of the average company's is attributable to long-term-rather than short-term-cash flows. Assume the following: The end of Year 3 differentiates Purple Panda's short-term and long-term FCFs. Professionally-conducted studies have shown that more than 80% of the average company's share price is attributable to long-term-rather than short-term-cash flows. Is the percentage of Purple Panda's expected long-term cash flows consistent with the value cited in the professional studies? No, because the percentage of Purple Panda's expected long-term cash flows is actually 14.30%. Yes, because 75.42% of the firm's share price is derived from its expected long-term free cash flows. Yes, because 85.70% of the firm's share price is derived from its expected long-term free cash flows. No, because only 50.05% of the firm's share price is derived from its expected long-term free cash flows

Answer & Explanation Solved by verified expert

See Answer