(solution) can you fix this up? I just don't know how to build this up

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

 

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