Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows: ($ millions) 2020 2021 2022 2023 2024 Net income 1.0 2.3 3.8 4.30 4.6 Investment 1.0 1.3 1.5 1.7 Free cash flow. 0 1.0 2.3 2.6 1.7 2.9 Phoenix's recovery will be complete by 2024, and there will be no further growth in net income or free cash flow. a. Calculate the PV of free cash flow, assuming a cost of equity of 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows: ($ millions) 2020 2021 2022 2023 2024 Net income 1.0 2.3 3.8 4.30 4.6 Investment 1.0 1.3 1.5 1.7 Free cash flow. 0 1.0 2.3 2.6 1.7 2.9 Phoenix's recovery will be complete by 2024, and there will be no further growth in net income or free cash flow. a. Calculate the PV of free cash flow, assuming a cost of equity of 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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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Question
**Please solve using Excel and explain all the formulas**
Transcribed Image Text:### Phoenix Corp. Financial Forecast Analysis
Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows:
| ($ millions) | 2020 | 2021 | 2022 | 2023 | 2024 |
|---------------|------|------|------|------|------|
| Net income | 1.0 | 2.3 | 3.8 | 4.30 | 4.6 |
| Investment | 1.0 | 1.3 | 1.5 | 1.7 | 1.7 |
| Free cash flow| 0 | 1.0 | 2.3 | 2.6 | 2.9 |
Phoenix’s recovery will be complete by 2024, and there will be no further growth in net income or free cash flow.
#### a. Present Value Calculation
Calculate the PV of free cash flow, assuming a cost of equity of 10%.
*Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.*
**Answer:**
**Present value:** __ million
#### b. Price Per Share Calculation
Assume that Phoenix has 10 million shares outstanding. What is the price per share?
*Do not round intermediate calculations. Round your answer to 2 decimal places.*
**Answer:**
**Price per share:** __
#### c. Rate of Return Confirmation
Confirm that the expected rate of return on Phoenix stock is exactly 10% in each of the years from 2020 to 2024.
*Hint: First, calculate the PV of all future cash flows starting in each year. Round your answer to 2 decimal places.*
| Years | Present Value | Rate of Return |
|-------|----------------|----------------|
| 2020 | __ | __ % |
| 2021 | __ | __ % |
| 2022 | __ | __ % |
| 2023 | __ | __ % |
*Please fill in the blanks with your calculations and analysis.*
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