1. ?A firm has free cash flow of $500,000 on their most recent financial statements.? The firm expects the FCF?s to grow at about 8% per year for the next three years and then decline to a more constant 2.5% from that point on.? The cost of capital for the firm is 10.50%.? The firm?s financials also revealed that the firm has marketable securities valued at $0.75 million as well as total debt of $1 million and preferred stock totaling $250,000.? The firm has total assets of $8 million.? If the firm has 400,000 shares outstanding and 500,000 shares authorized, what is the intrinsic value of common equity per share? ??
1. Value of the firm can be calculated as follows
Value of firm = Next year free cash flow / (Cost of capital ? growth rate)
= 500000 * (1+2.5%) / (10.50% ? 2.50%) = 6,406,250.00
Value of the...
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