Bulldog Industries
An analyst seeks to determine the value of Bulldog Industries. After careful research, the analyst believes that free cash flows for the firm will be $80 million in 2004 and will grow at 10% for 2005 and 2006. The free cash flows will grow at a rate of 5% after 2006.
-The market value of Bulldog Industries debt and preferred stock is $934 million.If the firm has a weighted average cost of capital of 10%,find the equity value of the firm's stock.The firm has 50 million shares of stock outstanding.(assume that we are at January 1,2004…)

Question

Quizplus · Accepted Answer

FCF 2005 = $80*1.10 = $88
FCF 2006 = $88 * 1.10 = $96.80
TV = $96.80 * 1.05 / (.1-.05)= $2,032.80
MV of FIRM = $80/1.10 + $88/(1.10)^2 + ($96.80+$2,032.80)/(1.10)^3 = $1,745.45
Equity value = $1,745.45 - $934 = $811.45
Per share = $811.45/50 =$16.23

Bulldog Industries An Analyst Seeks to Determine the Value of Bulldog Industries