Your employer, a midsized human resources management company, is considering expansion into related fields, including the purchase of Biggerstaff & McDonand (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Use B&M’s data and the free cash flow valuation model to answer the following questions: What is the estimated value of operations? What is the estimated total corporate value? (this is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?
Your employer, a midsized human resources management company, is considering expansion into related fields, including the purchase of Biggerstaff & McDonand (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Use B&M’s data and the free cash flow valuation model to answer the following questions: What is the estimated value of operations? What is the estimated total corporate value? (this is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Your employer, a midsized human resources management company, is considering expansion into related fields, including the purchase of Biggerstaff & McDonand (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has
- Use B&M’s data and the free cash flow valuation model to answer the following questions:
- What is the estimated value of operations?
- What is the estimated total corporate value? (this is the entity value.)
- What is its estimated intrinsic value of equity?
- What is its estimated intrinsic stock price per share?
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