GatekeeperCorp.is a fast-growing supplier of eccentric hair products. .Internal analysts project the following free cash flows (FCFs), in millions of dollars, during the next 5 years, after which FCFs are expected to grow at a constant 4% rate. Gatekeeper's WACC is estimated to be 10%.

Year 1 -50

Year 2. 30

Year 3. 60

Year 4. 90

Year 5-120

a. What is the current value of operations for Gatekeeper?

b. Suppose Gatekeeper has $35million in marketable securities, $80million in debt, and 20million shares of stock. What is the intrinsic price per share estimate of Gatekeeper stock today?

c. Suppose the aforementioned analyst projections were done by overly optimistic internal budgeting people, and you are a cautious, skeptical analyst who thinks that the initial projections might prove to be incorrect in the following ways: Actual permanent FCF growth after year 5 is only 2%...Actual WACC for years 2 and 3 stays at 10%, but the WACC for years 4 and beyond is 12%...The FCF generated in Year 5 is only 100, rather than 120. How much does your intrinsic price per share estimate of Gatekeeper stock change from that you initially estimated in part b?

Answer rating: 100% (QA)

a The current value of operations for Gatekeeper is the sum of the present values of the FCFs for ... View the full answer