Dely Company has decided to go public, and the initial public offering (IPO) price is determined as
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Question:
Dely Company has decided to go public, and the initial public offering (IPO) price is determined as $55. The estimated data for the free cash flow valuation model are given below:
Year | 2019 | 2020 | 2021 |
FCFt | $500,000 | $600,000 | $750,000 |
The growth rate of FCF, beyond 2021 to infinity, g = 3%. The weighted average cost of capital is calculated as 9%. The market value of debt is $1,000,000, and the market value of the preferred stock is $500,000. The company has 100,000 shares of stock outstanding.
a) What is the value of Dely's stock, P2018?
b) Would you buy or sell this stock in the market? Why?
Related Book For
Principles of Managerial Finance
ISBN: 978-0134476315
15th edition
Authors: Chad J. Zutter, Scott B. Smart
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