Ward Pharmaceuticals is expected to generate free cash flow (FCF) of $150 millio

Question

Ward Pharmaceuticals is expected to generate free cash flow (FCF) of $150 million this year (FCF1= $150 million), and FCF is expected to grow at a rate of 20% over the following two years (FCF2 and FCF3). After the third year, however, FCF is expected to grow at a constant rate of 5% per year, forever (FCF4). If Ward's weighted average cost of capital (WACC) is 11.8%, what is Ward's current total firm value?

2,999 million
2,820 million
2,862 million
2,907 million
2,952 million

Ward's debt has a market value of $1,800 million and Ward has no preferred stock. If Ward has 80 million shares of common stock outstanding, what is Ward's estimated intrinsic value per share of common stock?

$15.60
$12.74
$14.40
$13.28
$13.83

Thanks!

Explanation / Answer

2,820 million current total firm value= 150/1.118+(150x1.2/1.118^2)+(150x1.2^2/1.118^3)+{[(150x1.2^2x1.05)/(.118-.05)]/1.118^3}= $2819.507897 million rounding it will give $2,820 million intrinsic value per share of common stock= (2819.507897-1800)/80= $12.74

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