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Chrome File Edit View History Bookmarks People Window Help 66%G), Mon 4:09 PM Q E 2003-2005 NISSAN 350ZZ 3 Rising Storm 2: Vietnam on S/X- MindTap-Cengage Learning s × × ng.cengage.com/static/nb/ui/index.html?nbld-6074 34&nbNodelda; 2 2 2 4284 55&eISBN-9; 781 30 563 597 5# ! &parentld.; 2 2 2 4 287 96 MINDTAP Nate Young (3) Assignment 09-Stocks and Their Valuation Due on Nov 11 at 11:59 PM CST Back to Assignment Attempts: 0 11. More on the corporate valuation model Keep the Highest: 0/2 A Aa Acme Corp. is expected to generate a free cash flow (FCF) of $8,640.00 milion this year (FCF1 = $8,640.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF2 and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF4), If Acme Corp.'s weighted average cost of capital (WACC) is 6.30%, what is the current total firm value of Acme Corp.? $275,032.23 million O $330,038.68 milion O $324,842.57 million O $27,413.05 million Acme Corp.'s debt has a market value of $206,274 million, and Acme Corp. has no preferred stock. If Acme Corp has 450 million shares of common stock outstanding, what is Acme Corp.'s estimated intrinsic value per share of common stock? O $168.08 $151.80 $458.39 O $152.80 Flash Player MAC 27,0,0,18 Q3 3 34.1 © 2004-2016 Aplia Ali rights reserved © 2013 Cengage Learning except as noted. Al rights reserved. Grade It Now Save & Continue more)

Explanation / Answer

1

Option A

PV of cash flows=8640/1.063+8640*1.19/1.063^2+8640*1.19^2/1.063^3+Horizon Value/1.063^3

=8640/1.063+8640*1.19/1.063^2+8640*1.19^2/1.063^3+297429.552/1.063^3

=$275032.23 million

Horizon value or Terminal value=8640*1.19^2*1.021/(0.063-0.021)=$297429.552 million

2 Option D

Equity Value=Total value-Debt value=275032.23-206274=$68758.23 million

Number of shares=450 million

Hence, share price=68758.23/450=152.80

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