ABC Waterhouse\'s free cash flow next year will be $250 million and it is widely
ID: 2708731 • Letter: A
Question
ABC Waterhouse's free cash flow next year will be $250 million and it is widely expected to grow at a 5 percent annual rate indefinitely. The company's weighted average cost of
capital is 11 percent, the market value of its liabilities is $2.5 billion, and it has 32 million shares outstanding.
Estimate the price per share of ABC's common stock.
$52.08
A private equity firm believes that by selling 200 of the company
a. $32.08 b.$52.08
c. $22.58 d. $25.85A private equity firm believes that by selling 200 of the company
Explanation / Answer
Value of the firm = free cash flow/(WACC-G)
=250/(11%-5%) = $4166.67 million
Debt + Equity = 4166.67 million
2.5 billion + 32*P = 4166.67
P=$52.08
$52.08
A private equity firm believes that by selling 200 of the company