Question: (a.) You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC

(a.) You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF₁) is expected to be $70.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

Free cash flow: $70 million

Growth rate g: 5%

r: 10%

Value of the firm = F/(r-g)= 70/(10%-5%)=$1400 million

Value of common stock per share=1400-200/30= $40

The firm's estimated intrinsic value of common stock is $40 per share.

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