assume that today is December 31, 2012 and that the following information applie

Question

assume that today is December 31, 2012 and that the following information applies to Vermeil Airlines: a. after-tax operating income [EBIT(1-T)] for 2013 is expected to be $500 mil b.the depreciation expense for 2013 is expected to be $100 mil c. the capital expenditure for 2013 are expected to be $200 mil d. no change is expected in net operating working capital e. the free cash flow is expected to grow at a constant rate of 6% per year f. the required return on equity is 14% g. the WACC is 10% h. the market value of the company's debt is $3 billion i. 200 million shares of stock areoutstanding Using the corporate valuation model approach, what should be the company's stock price today? What steps do I need to take to calculate this number?

Explanation / Answer

market value of the company = ebit(1-t)/wacc = 500/.1 = $5000m

mv(company) = mv(equity) + mv(debt)

5000m = mv(euity) + 3000m

mv(equity) = $2000m

stock price = 2000m/no of shares = $10 per share

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