Assume that today is December 31, 2012, and the following information applies to Pacific Sky Airline:

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Assume that today is December 31, 2012, and the following information applies to Pacific Sky Airline:
• After-tax operating profit [EBIT (1-T), also called NOPAT] for 2013 is expected to be $500 million.
• The net capital expenditures for 2013 are expected to be $100 million (depreciation has already been deducted to arrive at the $100 million).
• No change is expected in net operating working capital.
• The free cash flow is expected to grow at a constant rate of 6% per year.
• The required rate of return on equity is 14%.
• The WACC is 10%. •The market value of the company's debt is $3 billion.
• 200 million shares of stock are outstanding.
Using the free cash flow approach, what should the company's intrinsic stock price be today? Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
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Financial Management Theory and Practice

ISBN: 978-0176517304

2nd Canadian edition

Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason

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