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The value of CoolTech's entire company is $. (Round to the nearest dollar.)

The value of CoolTech's entire company is $. (Round to the nearest dollar.)

Essentials Of Investments
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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**Using the Free Cash Flow Valuation Model to Price an IPO** Assume you have an opportunity to buy the stock of CoolTech, Inc., which is being offered as an IPO at $22.92 per share. To assess its fair pricing, you apply the free cash flow valuation model to the company’s financial data. The key values are summarized in the table below. **Tasks:** a. Use the free cash flow valuation model to estimate CoolTech’s common stock value per share. b. Based on your findings in part a and the offering price, decide if you should buy the stock. c. Evaluate the effect of a 7% growth rate in FCF beyond 2023, instead of 6%. How does this affect your previous responses? **Data Table:** - **Free Cash Flow (FCF):** - 2020: $680,000 - 2021: $780,000 - 2022: $880,000 - 2023: $970,000 - **Other Data:** - Growth rate of FCF beyond 2023 to infinity: 6% - Weighted average cost of capital: 8% - Market value of all debt: $8,100,000 - Market value of preferred stock: $3,240,000 - Number of shares of common stock to be issued: 1,100,000 **Question:** The value of CoolTech's entire company is _____ (Round to the nearest dollar).
Transcribed Image Text:**Using the Free Cash Flow Valuation Model to Price an IPO** Assume you have an opportunity to buy the stock of CoolTech, Inc., which is being offered as an IPO at $22.92 per share. To assess its fair pricing, you apply the free cash flow valuation model to the company’s financial data. The key values are summarized in the table below. **Tasks:** a. Use the free cash flow valuation model to estimate CoolTech’s common stock value per share. b. Based on your findings in part a and the offering price, decide if you should buy the stock. c. Evaluate the effect of a 7% growth rate in FCF beyond 2023, instead of 6%. How does this affect your previous responses? **Data Table:** - **Free Cash Flow (FCF):** - 2020: $680,000 - 2021: $780,000 - 2022: $880,000 - 2023: $970,000 - **Other Data:** - Growth rate of FCF beyond 2023 to infinity: 6% - Weighted average cost of capital: 8% - Market value of all debt: $8,100,000 - Market value of preferred stock: $3,240,000 - Number of shares of common stock to be issued: 1,100,000 **Question:** The value of CoolTech's entire company is _____ (Round to the nearest dollar).
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