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Present value of the free cash flows

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Johnson Industries invests a large sum of money in R & D: as a result it retains and reinvests all of its earnings. In other words Johnson's does not pay and dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Johnson's stock. The pension fund manager has estimated Johnson's free cash flows for next 4 years as follows: $3 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Johnson's WACC is 12 %, the market value of its debt and preferred stock totals $60 million, and it has 10 million shares of common stock outstanding.

a. What is the present value of the free cash flows projected during the next 4 years?

b. What is the firm's continuing value?

c. What is the firm's total value/

d. What is an estimate of Johnson's price per share?

Reference no: EM131473247

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