Problem $5(12$ points$)$

Coupon $Co.$ is a deal$-$of$-$the$-$day company that is considering going public but is unsure of a fair

offering price for the company. Before hiring an investment banker to assist in making the public

offering, managers at Coupon $Co.$ have decided to make their own estimate of the firm's stock

value. The firm's CFO has gathered data for performing the valuation using the discounted free

cash flow valuation model. The firm's weighted average cost of capital is $15\%,$ its tax rate is $40\%,$

its outstanding debt has a market value of $$300$ million, and it excess cash of $$150$ million.

The CFO has made the following projections, in $ million, for Coupon $Co.$ for the coming

two years $($assuming that all cash flows occur at the end of the year$).$

$(1)$ What is Coupon Co$.\text{'}$s expected free cash flow at the end of year $1$ and at the end of year

$2?(4$ pts$)$

Suppose that the CFO makes a rough estimate that the company's annual free cash flow

after year $2$ will grow by $5\%$ indefinitely $($i$.$e$.FC{F}_3=FC{F}_2(1+5\%),$ etc.$)$

$(2)$ What is the enterprise value of Coupon $Co.$ as of now based on the discounted free cash

flow approach? $(5$ pts$)$

$(3)$ Suppose that Coupon Co$.$ has $20$ million shares of stock outstanding. What is Coupon Co's

current stock price? $(3$ pts$)$