Ted Corporation expects to generate free-cash flows of $200,000 per year for the next five years.Beyond that time,free cash flows are expected to grow at a constant rate of 5 percent per year forever.If the firm's weighted average cost of capital is 15 percent,the market value of the firm's debt is $500,000,and Ted has a half million shares of stock outstanding,what is the value of Ted stock?

Question

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The value of the firm is calculated using the present value of free cash flows for the first five years and the present value of the terminal value. The terminal value is calculated using the formula: Terminal Value = (FCF * (1 + g)) / (WACC - g). The present value of these cash flows is then calculated and the market value of debt is subtracted to find the equity value. Finally, the equity value is divided by the number of shares to find the stock value per share.

Ted Corporation Expects to Generate Free-Cash Flows of $200,000 Per