Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Solution 12/7/2012
Chapter: 7
Problem: 23
Selected data for the Derby Corporation are shown below. Use the data to answer the following questions.
INPUTS (In millions)
WACC 9.00%
Number of shares of stock 40
Current
0 1 2 3 4
Free cash flow -$20.0 $20.0 $80.0 $84.0
Long-term constant growth in FCF 5.0%
Horizon value $2,205.00
Value of operations $1,681.84
Plus value of narketable securities $40.00
Year
c. Calculate the estimated Year-0 price per share of common equity.
b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated
Year-0 value of operations.
Projected
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).
