Allied Biscuit Co. is expected to generate a free cash flow (FCF) of $8,575.00 m

Question

Allied Biscuit Co. is expected to generate a free cash flow (FCF) of $8,575.00 million this year (FCF! = $8,575.00 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 Allied Biscuit Co.'s weighted average cost of capital (WACC) is 6.30%, what is the current total firm value of Allied Biscuit Co.? O $327,555.73 million $27,206.82 million O $322,398.72 million O $272,963.11 million Allied Biscuit Co.'s debt has a market value of $204,722 million, and Allied Biscuit Co. has no preferred stock. If Allied Biscuit Co. has 150 million shares of common stock outstanding, what is Allied Biscuit Co.'s estimated intrinsic value per share of common stock? O $1364.81 O $500.44 O $454.94 O $453.94

Explanation / Answer

FCF1=8575

FCF2=(8575*1.19)=10204.25

FCF3=(10204.25*1.19)=12143.0575

Value after year 3=(FCF3*Growth rate)/(WACC-Growth rate)

=(12143.0575*1.021)/(0.063-0.021)

=$295191.9454

Hence current tota firm value=Future cash flows*PResent value of discounting factor(6.3%,time period)

=8575/1.063+10204.25/1.063^2+12143.0575/1.063^3+295191.9454/1.063^3

=$272,963.11 million(Approx)

2.Intrinsic value=(272963.11-204722)/150

=$454.94(Approx)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.