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Assume today is December 31, 2019. Barrington industries

Ch 09: Blueprint Problems - Stocks and Their Valuation Free cash flows are generally forecasted for 5 to 10 years, after which it is assumed that the final forecasted free cash flow will grow at some long run constant rate. Once the firm reaches its horizon date, when cash flows begin to grow at a constant rate, the equation to calculate the continuing value of the firm's operations at that date is Horison value Vem ' gets at FCF /(WACC tro) Discount the tree cash flows back at the firm's weighted average cost of capital to arrive at the value of the firm today. Once the value of the firm's operations are calculated and the value of non operating assets are added, then the market value of debt and preferred are subtracted to arrive at the market value of equity. The market value of equity is divided by the number of common shares outstanding to estimate the firm's intrinske per share value We present 2 camples of the corporate v otion model in the first problem, we assume that the form is a mature company so its free cash flows grow at a constant rate. In the second problem, we Quantitative Problem 1: Assume today is December 31, 2019. Barrington Industries expects that its 2020 after tax operating income (EBIT(1 - 1)] will be 420 million and its 2020 depreciation expense will be $60 million Barrington's 2020 gross capital expenditures are expected to be $120 million and the change in its net operating working capital for 2020 will be $30 milion. The firm's free cash flow is expected to grow at a constant rate of 6% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.6%; the market value of th company's debt is $2.65 Mion and the company has 170 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has er non-perating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019? Do not round intermediate calculations. Round you to the recent Quantitative Problem 2: Hadiey Inc. forecasts the year and free cash flows (in milions) shown below FOF 22.5 37. 134 53 557 The weighted average cost of capital is 12, and the FCF are expected to continue growing at a re er Year 5. The firm has $26 milion of market value debt, but it has ne preferred stockor other outstanding aims. There are 18 million shares outstanding. Also, the firm has zero non operating assets. What is the value of the stock price today (ar 07 Round your answer to the nearest cent. Do not found intermediate calculations According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock. Conclusions Analysts use both the discounted dividend model and the corporate valuation model when valuing mature, dividend paying firms; and they generally use the corporate model when valuing divisions and firms that do not pay dividends. In principle, we should find the same intrinsic value using either model, but differences are often observed

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