Assume that today is December 31, 2019, and that the following information applies to Abner Airlines:  After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $650 million.  The depreciation expense for 2020 is expected to be $70 million.  The capital expenditures for 2020 are expected to be $250 million.  No change is expected in net operating working capital.  The free cash flow is expected to grow at a constant rate of 7% per year.  The required return on equity is 15%.  The WACC is 11%.  The firm has $198 million of non-operating assets.  The market value of the company's debt is $3.450 billion.  330 million shares of stock are outstanding. Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

Assume that today is December 31, 2019, and that the following information applies to Abner Airlines:

 After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $650 million.
 The depreciation expense for 2020 is expected to be $70 million.
 The capital expenditures for 2020 are expected to be $250 million.
 No change is expected in net operating working capital.
 The free cash flow is expected to grow at a constant rate of 7% per year.
 The required return on equity is 15%.
 The WACC is 11%.
 The firm has $198 million of non-operating assets.
 The market value of the company's debt is $3.450 billion.
 330 million shares of stock are outstanding.

Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Financial Planning Model
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education