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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