Debt Free Valuation
Stocks and their value model for assessing corporate questions?
Barrett Industries invests heavily in R & D and therefore it retains and reinvests all its earninings. In other words, Barrett does not pay dividends, and it does not intend to pay dividends in the near future. A major pension fund is interested in buying shares of Barrett. The pension fund manager estimated the free cash flow to Barrett for the next 4 years as follows: $ 3 million, $ 6 million, $ 10 million and 15 million dollars. After grade 4, free cash flow to grow at a constant rate of 7 percent. Barrett WACC is 12 percent, the total debt and preferred shares to 60 million ha and 10 million shares outstanding. A. What is the present value of projected cash flow for the next 4 years? B. What is the terminal value of the company? C. What is the total value of the company today? D. What is the estimated price Berrett per share?
A. 3/1.12 + 6 / (1.12 ^ 2) + 10 / (1.12 ^ 3) + 15 / (1.12 ^ 4) = 24.11 Terminal B value is in 4 years (15 x 1.07 ) / (0,12 – 0.07) = 321 C 24.11 + 321 / (1.12 ^ 4) = 228.11 D (228.11-60) / 10 = 16810000
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