You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

a. $40.35

b. $41.82

c. $43.33

d. $44.85

e. $46.42

Question

Kaila Shepard

Business

18 July, 16:13

You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

a. $40.35

b. $41.82

c. $43.33

d. $44.85

e. $46.42

+2

Answers (1)

Know the Answer?

Daniella Spencer · Answer 1

C. $43.33

Explanation:

FCF1 = $75.00

Constant growth rate = 5%

WACC = 10%

Total firm value = FCF1 / (WACC-g) = $1,500

Value of debt & preferred=$200

Value of equity = $1,300

# of shares = 30

Value per share = equity value / shares = $43.33