You have been assigned the task of using the corporate,or free cash flow,model to estimate Petry Corporation's intrinsic value.The firm's WACC is 10.00%,its end-of-year free cash flow (FCF₁)is expected to be $75.0 million,the FCFs are expected to grow at a constant rate of 5.00% a year in the future,the company has $200 million of long-term debt and preferred stock,and it has 30 million shares of common stock outstanding.Assume the firm has zero non-operating assets.What is the firm's estimated intrinsic value per share of common stock? Do not round intermediate calculations.

Question

Quizplus · Accepted Answer

The intrinsic value of the firm is calculated using the formula for the value of a growing perpetuity: Value = FCF1 / (WACC - g) = $75 million / (0.10 - 0.05) = $1,500 million. Subtract the long-term debt and preferred stock: $1,500 million - $200 million = $1,300 million. Divide by the number of shares: $1,300 million / 30 million shares = $43.33 per share.

You Have Been Assigned the Task of Using the Corporate,or