Excel Activity: Free Cash Flow Valuation Model

Start with the partial model in the file Ch$08$ P$25$ Build a Model.xlsx$.$ Selected data for the Derby Corporation are shown here. Use the data to answer the questions.

INPUTS $($In Millions$)$ Year

Current Projected

$01234$

Free cash flow $-$$$20\mathrm{.}0$ $$20\mathrm{.}0$ $$80\mathrm{.}0$ $$83\mathrm{.}2$

Marketable securities $ $60$

Notes payable $ $160$

Long$-$term bonds $ $640$

Preferred stock $ $80$

WACC $9\mathrm{.}00\%$

Number of shares of stock $20$

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

Download spreadsheet Ch$08$ P$25$ Build a Model$-531447.$xlsx

Calculate the estimated horizon value $($i$.$e$.,$ the value of operations at the end of the forecast period immediately after the Year$-4$ free cash flow$).$ Assume growth becomes constant after Year $3.$ Enter your answer in millions. For example, an answer of $$1\mathrm{.}23$ million should be entered as $1\mathrm{.}23,$ not $1,230,000.$ Round your answer to two decimal places.

$ fill in the blank $2$ million

Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year$-0$ value of operations. Enter your answers in millions. For example, an answer of $$1\mathrm{.}23$ million should be entered as $1\mathrm{.}23,$ not $1,230,000.$ Round your answers to two decimal places.

Present value of HV $ fill in the blank $3$ million

Present value of FCF fill in the blank $4$ million

Value of operations $ fill in the blank $5$ million

Calculate the estimated Year$-0$ price per share of common equity. Round your answer to the nearest cent.

$ fill in the blank $6$Free Cash Flow Valuation Model

a$.$ Calculating the estimated horizon value $($i$.$e$.,$ the value of operations at the end of the forecast

period immediately after the Year$-4$ free cash flow$)$

Constant long$-$term growth rate

Formulas

Horizon value at Year $4$

million

#N$/$A

#N$/$A

b$.$ Calculating the present value of the horizon value, the present value of the free cash flows,

and the estimated Year$-0$ value of operations

Present value of HV

Present value of FCF

Value of operations

million

million

c$.$ Calculating the estimated Year$-0$ price per share of common equity

Value of operations

Value of marketable securities

million

Total intrinsic value

Value of total debt

Value of preferred stock

Intrinsic value of equity

$$ Number of shares

Intrinsic stock price