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A company generated free cash flow of $51 million last year and expects it to grow at a constant rate of 4 percent indefinitely. The company’s weighted average cost of capital is 12 percent. The company has 25 million shares of outstanding stock, and the current price per share is $28.50.
a. Calculate the company’s free cash flow for next year
b. Calculate the value of the company’s operations
c. Calculate the value of one share of the company’s stock.
d. Is the company’s stock a good buy? Explain
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https://brainmass.com/business/business-management/fee-cash-flow-value-of-operations-and-stock-price-227038
Solution Preview
a. Calculate the company’s free cash flow for next year
The FCF is growing at 4% per year, so the FCF for next year would be higher by 4%. The FCF1 (for next year) would be 51X1.04 = $53.04
b. Calculate the …
