Happy Giraffe Elevator Company is expected to generate a free cash flow of $21,0

Question

Happy Giraffe Elevator Company is expected to generate a free cash flow of $21,000,000 this year (  ), and the FCF is expected to grow at a rate of 13.00% over the next two years (   and   ). After the third year, however, the company's FCFs are expected to grow at a constant rate of 2.00% per year, which will last forever (   and on). If Happy Giraffe’s weighted average cost of capital (WACC) is 7.00%, then the company's current total firm value should be selector 1

$62,241,815

$508,776,312

$588,539,074

$609,265,775

. (Note: Round the results of your intermediate calculations and your final answer to the nearest whole dollar.)

Happy Giraffe’s debt has a market value of $178,071,709, and the company has no preferred stock in its capital structure. If Happy Giraffe has 6,500,000 shares of common stock outstanding, then the estimated intrinsic value per share of common stock is selector 1

$38

$51

$56

$74

per share

Explanation / Answer

Value of stock=Total Value - Value of Debt=609265775-178071709=431194066

Intrinsic Value per share=431194066/6500000=66.33

Year Cash Flow PV @7% Formulae Y0 21000000 19626168.2 =21000000/(1.07^1) Y1=Y0*1.13 23730000 20726701 =23730000/(1.07^2) Y2=Y1*1.13 26814900 21888945.9 =26814900/(1.07^3) Y3=Y2*1.02 27351198 547023960 =27351198/(0.07-0.02) (growing perpetuity) Total 609265775 So the current firm value is 609265775

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