Posted: May 5th, 2021

Fin – derby corporation problem

Selected data for the Derby Corporation are shown below. Use the data to answer the following questions.               INPUTS (In millions)   Year     Current Projected     0 1 2 3 4 Free cash flow     -$20.0 $20.0 $80.0 $84.0 Marketable Securities   $40         Notes payable   $100         Long-term bonds   $300         Preferred stock   $50         WACC    9.00%         Number of shares of stock 40                       a.  Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow).                   Current Projected     0 1 2 3 4 Free cash flow     -$20.0 $20.0 $80.0 $84.0 Long-term constant growth in FCF           Horizon value                           b.  Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations.               PV of horizon value             PV of FCF             Value of operations (PV of FCF + HV)                         c.  Calculate the estimated Year-0 price per share of common equity.               Value of operations             Plus value of narketable securities           Total value of company           Less value of debt             Less value of preferred stock           Estimated value of common equity           Divided by number of shares           Price per share            

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