CORPORATE VALUATION Brandtly Industries invests a large sum of money in R&D; as
ID: 2618030 • Letter: C
Question
CORPORATE VALUATION
Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $2 million, $5 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 4%. Brandtly's WACC is 13%, the market value of its debt and preferred stock totals $40 million; and it has 20 million shares of common stock outstanding.
Write out your answers completely. For example, 13 million should be entered as 13,000,000.
What is the present value of the free cash flows projected during the next 4 years? Round your answer to the nearest cent. Do not round your intermediate calculations.
$
What is the firm's horizon, or continuing, value? Round your answer to the nearest cent.
$
What is the firm's total value today? Round your answer to the nearest cent. Do not round your intermediate calculations.
$
What is an estimate of Brandtly's price per share? Round your answer to the nearest cent. Do not round your intermediate calculations.
$
Explanation / Answer
Answer 1
Year
Answer 2 The firm time horizon is upto perpetuity and continuing value is = $15(1+0.04)/(15%-4%) = 173.33$
Answer 3
$ million
Answer 4
Year
FCF PV Factor @ 13% Present value 1 2 $ Million 0.885 1.770 2 25 $ Million 0.783 19.579 3 10 $ Million 0.693 6.931 4 15 $ Million 0.613 9.200 37.479Related Questions
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