A stock market analyst is evaluating the common stock of Heuser Family Corporation. ( H FC). She
Fantastic news! We've Found the answer you've been seeking!
Question:
A stock market analyst is evaluating the common stock of Heuser Family Corporation. (HFC). She estimates that the company’s operating income (EBIT) for the next year will be $315 million. Furthermore, she predicts that next year HFC will require $180 million in capital expenditures and depreciation expense will be $24 million, so net capital expenditures for next year will be $156 million. Changes in net operating working capital (NOWC) for next year are expected to be $15 million. Free cash flow is expected to grow at a constant annual rate of 5% per year and the company’s WACC is 10%. The company has $205 million of debt (market value equals book value), $50 million of preferred stock (market value equals book value), and it has 50 million shares of common stock. The firm’s tax rate is 25%.
a. What is the estimated value of free cash flow the first year?
b. Using the free cash flow valuation method, what is its expected stock price today?
Related Book For
Statistics For Business And Economics
ISBN: 9780132745659
8th Edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date: