80.2K

Verified Solution

Link Copied!

sachs cour Ch 091 Blueprint Problems - Stocks and Their Valuation Discount the free 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 ser 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 intrinsic per-share value We present examples of the corporate con modet. In the first problem, we asume that the form is a mature company so its free cash flows grow at a constant rate. In the second problem, we assume that the firm has a period of nonconstant growth Quantitative Problem 1: Assume today in December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income LENITI - T)) will be 5440 milion and its 2020 depreciation expense will be $60 milion. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $25 million. The firm's free cash now is expected to grow at a constant rate of annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.5%; the market value of the company's cet 52.2 Blon and the company has 180 milion 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, Ass, the firm has zero non- operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019? Do not round intermediate calculations. Hound your answer to the nearest cent. 5 per share Quantitative Problem 3t Hadley Inc. forecasts the year and free cash flows in milions) shown below. Year TOP -522.86 5377 544 3526 $57 The weighted average cost of capital is 10%, and the Fors are expected to continue growing at a rate after years. The firm has 25 milica of market value debt, but it has no preferred stock or any other cutstanding claims. There are 21 milion shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today crear ? Round your answer to the rest cent. De net round Intermediate calculations 1 per share According to the valuation models developed in this chapter, the value that an investor assigns to share of stock is dependent on the length of time the investor plans to hold the stook The statement Move Select Conclusione Aralysts use both the vidend model and the corporate valuation model when valuing mature, dividend paying tem, and they generally use the corporate model when valuing divisions and there that not pay dividends. In prinople, we should find the same intrinsic value using the model, but differences en served Even if a company is paying Heady dividende, much can be leamed from the corporate model, so analysts today use it for all types of valuation. The process of projecting More Financial statements can reveala great deal about a company's operations and financing needs. Also, such an analysis can provide insights into actions that might be taken to increase the coroany's value and for this reason, it is integral to the planning and forecasting process

Answer & Explanation Solved by verified expert

See Answer