Compute the estimated stock price per share

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Questions -

Q1. The free cash flow to the firm is reported as $405 million. The interest expense to the firm is $76 million. If the tax rate is 35% and the net debt of the firm increased by $50 million, what is the free cash flow to the equity holders of the firm?

Q2. A company has $100 million in assets and $40 million in debt. There are 1 million shares of stock outstanding. The cost of equity is 13% and the WACC is 10%. The firm expects the following free cash flow (in millions) for the next three years, after which it is expected to grow at a rate of 3% per year.

Year

FCFF

FCFE

1

10

7

2

12

10

3

15

12

a. Compute the estimated stock price per share by finding the total value of the firm (use the FCFF and the WACC as the discount rate) and subtracting out the value of the debt.

b. Compute the estimated stock price by using the FCFE and the cost of equity as the discount rate?

Reference no: EM132886701

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