You want to buy shares of a stock that doesn't pay any dividends, so you have decided
Question:
You want to buy shares of a stock that doesn't pay any dividends, so you have decided to value it by discounting its free cash flow. The Company currently has $10 million of debt (today's market value) in publicly traded bonds. Those bonds have a YTM of 8.00% and will mature in 5 years. There are one million shares of stock outstanding.
You expect the company to produce $5M of free cash flow next year, $8 million of free cash fow the following year and $10 million per year (forever) starting three years from now. You have decided that you should discount this company's free cash flow at a rate if 12% per year.
What do you feel should be the price per share of the stock?
Price per share of stock?
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford