d. TTC recently introduced a new line of products that has been wildly successfu

Question

d. TTC recently introduced a new line of products that has been wildly successful. On the basis of this success and anticipated future success, the following free cash flows were projected FCF (in millions S5.5 $12.1 $23.8 $44.1 S69.0 $88.8 $107.5 $128.9 $147.1 $161.3 Year 7 9 10 After the 10th year, TTC's financial planners anticipate that its free cash flow will grow at a constant rate of 6%. Also, the firm concluded that the new product caused the WACC to fall to 9%. The market value of TTC's debt is $1,200 million, it uses no preferred stock, and there are 20 million shares of common stock outstanding. Use the corporate valuation model approach to value the stock. INPUT DATA: (Dollars in Millions) WACC gn Millions of shares MV of debt 9% 690 20 $1,200

Explanation / Answer

Lets assume 10% dividend

So 81.5 * 10%

= 8.15

Price of the stock = D/cost of equity - growth rate

= 8.15/10%-6%

= $ 81.41

Year 0 1 2 3 4 5 6 7 8 9 10 11 FCF    5,500,000.0    12,100,000.0    23,800,000.0    44,100,000.0    69,000,000.0    88,800,000.0    107,500,000.0    128,900,000.0    147,100,000.0    161,300,000.0    170,978,000.00 PV    5,045,871.6    10,184,327.9    18,377,966.8    31,241,551.8    44,845,265.7    52,948,538.6      58,806,181.3      64,690,563.4      67,728,926.4      68,134,863.2 Total PV          422,004,056.7 HV    5,699,266,666.67 PV of HV    2,407,431,831.38 Value of corporation    2,829,435,888.06 Debt      1,200,000,000.0 Value of common equity      1,629,435,888.1 No of shares outstanding            20,000,000.0 Value per share                             81.5

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