Assume that today is December 31, 2016, and that the following information applies to Abner Airlines:
Question:
Assume that today is December 31, 2016, and that the following information applies to Abner Airlines:
• After-tax operating income [EBIT(1 – T)] for 2017 is expected to be $400 million.
• The depreciation expense for 2017 is expected to be $140 million.
• The capital expenditures for 2017 are expected to be $225 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 return on equity is 14%.
• The WACC is 10%.
• The market value of the company’s debt is $3.875 billion.
• 200 million shares of stock are outstanding.
Using the corporate valuation model approach, what should be the company’s stock price today?
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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Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham