omework, part 2 -Graded at Noon COT CORPORATE VALUATION Brandtly Industries inve
ID: 2614145 • Letter: O
Question
omework, part 2 -Graded at Noon COT CORPORATE VALUATION Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandily does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: S2 million S5 million, $8 million and $15 million. After the fourth year, free cash flow is projected to grow at a constant 5%, Brandt's WACC is 15% the market value of its debt and preferred stock totals $72 million; and it has 20 million shares of common stock outstanding. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a. What is the present value of the free cash flows projected during the next 4 years? Round your answer to the nearest cent. Do not round your intermediate calculations. 19356277.31 b. What is the firm's horizon, or continuing, value? Round your answer to the nearest cent 17250000 c. What is the firm' s total value today? Round your answer to the nearest cent. Do not round 212 PM /12/201Explanation / Answer
b. Firm's Horizon = YEar 4 Cash Flow * (1 + Growth rate) / WACC - Growth Rate
Firm's Horizon = $15 Million * (1 + 0.05) / 15% - 5%
Firm's Horizon = $157500000
c. Firm's Vaue Today = PV of Year 1 - 4 Cash Flow + PV of Terminal CF
Firm's Vaue Today = $19356277.31 + $157500000 * 0.57175
Firm's Vaue Today = $109407413.50
d.Brandtly's Price per share
Price per Share = Firm's Value Today - Market Value of Preferred Stock and Debt / No.of SharesO/s
Price per Share = $109407413.50 - 72000000 / 20000000
Price per Share = $1.87
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