Ising the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $15.96 per share. Although you are very much interested in owning the comp re concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled ummarized in the following table, . Use the free cash flow valuation model to estimate Cool Tech's common stock value per share. Judging by your finding in part a and the stock's offering price, should you buy the stock? On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b? The value of CoolTech's entire company is $. (Round to the nearest dollar.)
Ising the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $15.96 per share. Although you are very much interested in owning the comp re concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled ummarized in the following table, . Use the free cash flow valuation model to estimate Cool Tech's common stock value per share. Judging by your finding in part a and the stock's offering price, should you buy the stock? On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b? The value of CoolTech's entire company is $. (Round to the nearest dollar.)
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
Related questions
Question
Transcribed Image Text:Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $15.96 per share. Although you very much interested in owning the company,
are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled are
summarized in the following table,
a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.
b. Judging by your finding in part a and the stock's offering price, should you buy the stock?
c. On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b?
a. The value of CoolTech's entire company is $. (Round to the nearest dollar.)
C
Transcribed Image Text:Free cash flow
FCF
Year (t)
2020
2021
2022
2023
$710,000
$850,000
$950,000
$1,090,000
Other data
Growth rate of FCF, beyond 2023 to infinity = 6%
Weighted average cost of capital = 9%
Market value of all debt = $6,030,000
Market value of preferred stock = $2,410,000
Number of shares of common stock to be issued = 1,100,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
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…
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