Entire Value of Company Vc, Complete two classmate responses for financial course

CLASSMATE POST 1:

Year (t)

FCF(t)
(1)

(1 + ra)^t
(2)

Present Value of FCF(t)
[(1) /(2)]
(3)

2013

$700,000

1.080

$648,148

2014

$800,000

1.166

$686,106

2015

$950,000

1.259

$754,567

2016

1,100,000

1.360

$808,823

2017

19,800,00

1.469

$13,478,556

Entire Value of Company Vc

$16,376,200

  1. Use the free cash flow valuation model to estimate CoolTech’s Common  Stock Value per share

Vs = $16,376,200 – $2,700,000 – $1,000,000 = $12,676,200

Vs = $12,676,200

The value of CoolTech’s Common stock is estimated as $12,676,200

Dividing the estimated value by the total amount of shares =

$12,676,200/ 1,100,000

= $11.52 per share

  1. Judging on the basis of my findings of the estimated value of the share being $11.52 per share, I will NOT  buy the stock. Considering the fact that I was offered $12.50 per share in the IPO.
CLASSMATE POST 2:

Lawrence Industries’ most recent annual dividend was $1.80 per share (D0 = $1.80), and the firm’s required return is 11% Find the market value of Lawrence’s shares when:

a.) Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growth rate in years 4 to infinity.

D4 = D3 X (1 + .05) 

      = $2.27 X (1.05)

      = $2.38

P3 = D4 / rs-g2

    = 2.38 / (.11 – .05)

    = 2.38 / .06

    = $39.67

b.) Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growth rate in years 4 to infinity.

D4 = D3 X (1 + 0)

    = $2.27 X (1)

    = $2.27

P3 = D4 / rs – g2

    = 2.27 / (.11 – 0)

    = 2.27 / .11

    = $20.64

c.) Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual growth rate in years 4 to infinity. 

D4 = D3 X (1 + .10)

    = 2.27 X 1.10

    = $2.50

P3 = D4 / rs – g2

    = 2.50 / (.11-.10)

    = 2.50 / .01

    =$250

 
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