Normaltown CorporationAn analyst has predicted the free cash flows for Normaltown Corporation for the next four years:YEAR2004FCF$13 million2005$17 million2006$23 million2007$28 millionAfter 2007, the free cash flows are expected to grow at an annual rate of 4%. The weighted average costof capital for Normaltown is 14%. If the market value of the firm's debt is $110 million, find the value of thefirm's equity.$158.77 million$89.39 million$216.00 million$119.00 million

The value of equity represents shareholders' ownership in a company. It's vital for investors as it…

Answered: Normaltown Corporation An analyst has…

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

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STARS Inc. forecasts a positive Free Cash Flow for the coming year, with FCF1 = $10,000,000, and it expects a growth rate of 20% for the next two years. After Year 3, FCF is expected to grow at a constant rate of 6% forever. The Weighted Average Cost of Capital (WACC) is 10.00%, and the company has $85,000,000 of long-term debt (the remainder is comprised of common equity) and 12.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock? (Ch. 9) Group of answer choices 27.75 21.22 19.29 24.12 26.38
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