Due to the highly specialized nature of the electronic industry, Barret Industries invests a lot of money in R$D on prospective products. Consequently, it retains all of its earnings and reinvests them into the firm.( In other words, it does not pay dividends). At this time, Barret does not have plans to pay any dividends in the near future. A major pension fund is interested in purchasing Barrett's stock, which is traded on the NYSE. The treasurer of the pension fund has done a great deal of research on the company and realizes that its valuation must be based on the total company model(free cash flows approach). The pension fund's treasurer has estimated Barrett's free cash flows for the next 4 years as follows: $3million, $6million, $10million, and $15million. After the fourth year, free cash flow is projected to grow at a constant 7%. Barrett's WACC is 12%; it has $60million of total debt and preferred stock, and $10millon shares of common stock. Required: I). Determine the Present Value of Barrett's free cash flows during the next 4years and its terminal value ii). What is the total value of the firm today and its price per share?
Due to the highly specialized nature of the electronic industry, Barret Industries invests a lot of money in R$D on prospective products. Consequently, it retains all of its earnings and reinvests them into the firm.( In other words, it does not pay dividends). At this time, Barret does not have plans to pay any dividends in the near future. A major pension fund is interested in purchasing Barrett's stock, which is traded on the NYSE. The treasurer of the pension fund has done a great deal of research on the company and realizes that its valuation must be based on the total company model(free cash flows approach). The pension fund's treasurer has estimated Barrett's free cash flows for the next 4 years as follows: $3million, $6million, $10million, and $15million. After the fourth year,
I). Determine the
ii). What is the total value of the firm today and its price per share?
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