Question: Valuing free cash flow Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2016 are

Valuing free cash flow Phoenix Corp. faltered in the recent recession

Valuing free cash flow Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2016 are as follows. ($ millions) 2017 2018 2019 2020 2021 1.0 4.0 Net income Investment Free cash flow 2.0 1.0 3.2 1.2 1.0 3.7 1.4 2.3 1.4 2.6 0 1.0 2.0 Phoenix's recovery will be complete by 2021, and there will be no further growth in free cash flow. a. Calculate the PV of free cash flow, assuming a cost of equity of 9%. b. Assume that Phoenix has 12 million shares outstanding. What is the price per share? c. If the 2016 net income is $1 million, what is Phoenix's P/E ratio? How do you expect that P/E ratio to change from 2017 to 2021

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