You have been assigned the task of using the free cash flow model to estimate Petry Corporation's intrinsic value.Petry's WACC is 10.00%,its end-of-year free cash flow (FCF) is expected to be $150.0 million,the FCFs are expected to grow at a constant rate of 6.00% a year in the future,the company has $200 million of long-term debt plus preferred stock,and it has 50 million shares of common stock outstanding.What is Petry's estimated intrinsic value per share of common stock?

Question

Quizplus · Accepted Answer

First, we need to find the total value of the firm (TV) by using the free cash flow model:

TV = FCF / (WACC - g) 
TV = $150 / (0.1 - 0.06) 
TV = $3,750 million

Next, we need to subtract the total debt and preferred stock from the TV to get the total equity value:

Equity value = TV - total debt - preferred stock 
Equity value = $3,750 - $200 - $0 
Equity value = $3,550 million

Finally, we divide the equity value by the number of outstanding shares to get the intrinsic value per share:

Intrinsic value per share = Equity value / number of common shares 
Intrinsic value per share = $3,550 million / 50 million 
Intrinsic value per share = $71.00

Therefore, the estimated intrinsic value per share of Petry Corporation's common stock is $71.00. Answer choice C is correct.

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