ts to evaluate the projected share price for Froggy Toy Frogs, Inc. based on the projected future cash flows of the company. These cash flows are outlined below. The company anticipates a 6% growth rate per year after the 5th year, and has a weighted average cost of capital of 10%. The company has no excess cash, debt of $200 million, and 25 million shares outstanding. Use the discounted free cash flow model to determine the share price for Froggy Toy Frogs, Inc. Year 1 2 3 4 5 Free Cash Flow (Millions) 52 59 65 70 82 Using this information: • What is the terminal enterprise value of the company? • Using the terminal enterprise value, what is the current, present value of the co
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Management wants to evaluate the projected share price for Froggy Toy Frogs, Inc. based on the projected future cash flows of the company. These cash flows are outlined below. The company anticipates a 6% growth rate per year after the 5th year, and has a weighted average cost of capital of 10%. The company has no excess cash, debt of $200 million, and 25 million shares outstanding. Use the discounted
| Year | 1 | 2 | 3 | 4 | 5 |
| Free Cash Flow (Millions) |
52 | 59 | 65 | 70 | 82 |
Using this information:
• What is the terminal enterprise value of the company?
• Using the terminal enterprise value, what is the current, present value of the company?
Terminal value of company is the value of company based on constant growth in the free cash flow of the company and based on the required rate and growth rate.
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