Entire Value of Company Vc, Complete two classmate responses for financial course
CLASSMATE POST 1:
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Year (t) |
FCF(t) |
(1 + ra)^t |
Present Value of FCF(t) |
|
2013 |
$700,000 |
1.080 |
$648,148 |
|
2014 |
$800,000 |
1.166 |
$686,106 |
|
2015 |
$950,000 |
1.259 |
$754,567 |
|
2016 |
1,100,000 |
1.360 |
$808,823 |
|
2017 |
19,800,00 |
1.469 |
$13,478,556 |
|
Entire Value of Company Vc |
$16,376,200 |
- Use the free cash flow valuation model to estimate CoolTech’s Common Stock Value per share
Vs = $16,376,200 – $2,700,000 – $1,000,000 = $12,676,200
Vs = $12,676,200
The value of CoolTech’s Common stock is estimated as $12,676,200
Dividing the estimated value by the total amount of shares =
$12,676,200/ 1,100,000
= $11.52 per share
- Judging on the basis of my findings of the estimated value of the share being $11.52 per share, I will NOT buy the stock. Considering the fact that I was offered $12.50 per share in the IPO.
Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80), and the firm’s required return is 11% Find the market value of Lawrence’s shares when:
a.) Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity.
D4 = D3 X (1 + .05)
= $2.27 X (1.05)
= $2.38
P3 = D4 / rs-g2
= 2.38 / (.11 – .05)
= 2.38 / .06
= $39.67
b.) Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity.
D4 = D3 X (1 + 0)
= $2.27 X (1)
= $2.27
P3 = D4 / rs – g2
= 2.27 / (.11 – 0)
= 2.27 / .11
= $20.64
c.) Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity.
D4 = D3 X (1 + .10)
= 2.27 X 1.10
= $2.50
P3 = D4 / rs – g2
= 2.50 / (.11-.10)
= 2.50 / .01
=$250
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