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According to the value-based management model, what is the stock price per share given the following: Year 1 Revenue 725
According to the value-based management model, what is the stock price per share given the following:
Year 1
Revenue 725.00
Fixed Costs 90.00
Variable Costs 280.00
Additional investment in NWC 3.00
Additional investment in operating long-term assets 80.00
Depreciation 75.00
Tax Rate 0.40
The free cash flow is expected to grow at 8% per year from year 1 to year 5 and 6% per year after year 5 to infinity.
WACCcomp = 20%
Market Value of the firm:
Price Per Share #of Shares Market Value
Long term debt 700.00
Preferred stock 7.00 10 70.00
Common Stock, equity 15.00 100 1,500.00
Total 2,270.00
Market value of non-operating short term assets=50
Market value of non-operating long term assets=80
a. $5.68
b. $7.22
c. $9.97
d. $6.90
e. $8.54
Expert Solution
Correct option is a). $5.68
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