Consider a firm with expected free cash flows to the firm (FCFF) of $100 million in Year 1. For the next three years, we expect FCFF to grow at 10% per year. After this, the firm will experience stable growth of 2%. Assume the cost of capital is 14% and the firm has no debt. What is the value of the firm?

If the firm has no leverage and has 13 million shares outstanding, what is the share price?  

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Basic Two-Stage Growth Valuation Model Inputs Year 1 FCFF ($M) Initial Growth Rate (g_ST) Terminal Growth Rate (g_LT) WACC Shares (M) Calculations Year Cash Flows Terminal Value Total CF PV Output Total PV Price per share 0 100 10% 2% 14% 13 1 2 3 st 4 Basic Two-Stage Growth Valuation Model Inputs Year 1 FCFF ($M) Initial Growth Rate (g_ST) Terminal Growth Rate (g_LT) WACC Shares (M) Calculations Year Cash Flows Terminal Value Total CF PV Output Total PV Price per share 0 100 10% 2% 14% 13 1 2 3 st 4

Answer rating: 100% (QA)

SOLUTION To calculate the value of the firm using the TwoStage Growth Valuation Model we need to cal... View the full answer