Autonomous Vehicles, Inc. has some new products that it expects to lead to high growth in the
Question:
Autonomous Vehicles, Inc. has some new products that it expects to lead to high growth in the near future. It has given analysts the following forecasts for the next three years:
The firm’s debt has a current market value of $900,000 and it has $75,000 in marketable securities. There are 500,000 common shares outstanding. The expected tax rate is 25%, and the WACC is estimated to be 10%.
a. Calculate the free cash flow for each of the next three years.
b. After 2022 free cash flow growth is expected to slow to 7% per year permanently. What is the value of the stock today?
c. Without the new products, free cash flow in 2020 would be $100,000 and it would grow at 7% per year forever. What is the value of the stock if the new products aren’t introduced?
Step by Step Answer:
a To calculate the free cash flow for each of the next three years we need to use the formula Free ...View the full answer
