Intermediate Accounting II, after doing my calculations I am still getting the w

Question

Intermediate Accounting II, after doing my calculations I am still getting the wrong amount for price per share. I am missing a step and that is adding the perpetuity value back into the present value of the other cash flows, I know it must be discounted back in but I am not sure how to do that. I also know I need to use the rate of return which is 12%

EQUITY VALUATION USING DISCOUNTED FREE CASH FLOW IS MY ASSIGNMENT

Please help!!! Thank you,Sharon

This is the formula I used

YR1 YR 2                 YR 3            YR 4      YR 5

FREE CASH FLOW 3500 4375 5469            6836      8545

ANNUAL GROWTH 875 1094 1367           1709

(Free Cash Flow) 4375 + 5469 + 6836     +    8545 present value of 71,208   

TOTAL PV= 25,225

8545/.012=71,208 value of perpetuity

Not Sure how to add value of perpetuity to the present value of the other free cash flows,it must be discounted back as a lump sum.

Present values

YR1       YR2         YR3           YR4

0.8929     0.7972     0.7118        0.6355

4375*0.8929=3906

5469*0.7972=4360

6836*0.7118=4866

8545*0.6355=5430

$? / Outstanding shares 3000=Price per share?

THIS IS THE ACTUAL PROBLEM!!! BELOW

Explanation / Answer

Perpetuity value= 8545/.12=71208

PV of perpetuity at 5 years= 71208/(1.12)^4=71208/1.575= $45211

Total cash flow= PV of 4 years cash flow+value of annuity=3920+3489+3893+4340+45211=$60853

Price per share=60853/3000= $20.28

Particulars Year 1 Year 2 Year 3 year 4 year 5 Cash Flow growing at 25% 3500 4375 5469 6836 8545 Discounted @12% (1+R)^T 1.12 1.254 1.405 1.575 1.762 Discounted Cash flow 3920 3489 3893 4340 4850

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