Answer:
a. What is the present value of the free cash flows projected during the next 4 years?
the NPV of the firm's cash flows = $3/1.09 + $6/1.09² + $8/1.09³ + $16/1.09⁴ = $2,752,294 + $5,050,080 + $6,177,468 + $11,334,803 = $25,314,645
b. What is the firm’s horizon, or continuing, value?
to calculate terminal or horizon value at year 4, we must use the Gordon growth model formula:
terminal value = [$16,000,000 (1 + 3%)] / (9% - 3%) = $16,480,000 / 6% = $274,666,667
c. What is the firm’s total value today?
firm's total present value = $25,314,645 + ($274,666,667/1.09⁴) = $219,895,463
d. What is an estimate of Brandtly’s price per share?
Brandtly's share price = (firm's present value - total debt) / outstanding stocks = ($219,895,463 - $75,000,000) / 7,500,000 million stocks = $19.32 per stock
