Question

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

Answer 1

The stock price is mathematically given as

P=$57.64

What is the stock price?

Generally, the equation for is Value after year  mathematically given as

$V=\frac{(FCF for year 5*Growth rate)}{(WACC-Growth rate)}\\\\V = \frac{(55.4*1.05)}{(0.09-0.05)}$

V= $1454.25

Hence, the current value is mathematically given as

I=Discounting factor equal to the future cash flows multiplied by their present value

$I=\frac{-22.76}{1.09} + \frac{38.8}{1.09^2}+ \frac{43.4}{1.09^3}+\frac{52.3}{1.09^4}+\frac{55.4}{1.09^5}+\frac{1454.25}{1.09^5}$

I=$1063.508769

current value for ordinary stock

I'=$1037.508769million

In conclusion, the stock price is

P=(1037.508769/18)

P=$57.64

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