Watkins Inc. has never paid a dividend, and when it might begin paying dividends is unknown. Its current free cash flow is $100,000, and this FCF is expected to grow at a constant 7% rate. The weighted average cost of capital is WACC = 11%. Watkins currently holds $325,000 of nonoperating marketable securities. Its long-term debt is $1,000,000, but it has never issued preferred stock. Watkins has 50,000 shares of stock outstanding.
a. Calculate Watkins’ value of operations.
b. Calculate the company’s total value.
c. Calculate the value of its common equity.
d. Calculate the per share stock price.