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- September 13, 2020
- By menge

can you fix this up? I just don’t know how to build this up

12/7/2012 Chapter: 7 Selected data for the Derby Corporation are shown below. Use the data to answer the following questions.

INPUTS (In millions) Year

Current

0 Free cash flow

Marketable Securities

Notes payable

Long-term bonds

Preferred stock

WACC

Number of shares of stock 1

-$20.0 Projected

2

3

$20.0

$80.0 4

$84.0 $40

$100

$300

$50

9.00%

40 a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately

after the Year-4 free cash flow).

Current

0

Free cash flow

Long-term constant growth in FCF

Horizon value 1

-$20.0 Projected

2

$20.0 3 4 $80.0 $84.0 b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year0 value of operations.

PV of horizon value

PV of FCF

Value of operations (PV of FCF + HV)

c. Calculate the estimated Year-0 price per share of common equity.

Value of operations

Plus value of narketable securities

Total value of company

Less value of debt

Less value of preferred stock

Estimated value of common equity

Divided by number of shares

Price per share