Question

Danielsen's has 15,000 shares of stock outstanding and projected annual free cash flows of $48,200, $57,900, $71,300, and $72,500 for the next four years, respectively. After that, the cash flows are expected to increase at a constant annual rate of 1.6 percent. What is the current value per share of stock at a discount rate of 15.4 percent

Answer 1

Answer:

$31.57 per share

Explanation:

Terminal Value (TV) = CF5(1 + g) / (Ke – g)

= $72,500*(1 + 0.0160) / (0.1540-0.0160)

= $73,660 / 0.1380

= $533,768

Year   Cash Flow    PVF at 15.40%     PV of Free Cash Flow

1           48,200          0.866551                       41,768

2          57,900          0.750911                        43,478

3          71,300           0.650703                      46,395

4          72,500          0.563867                      40,880

4        533,768          0.563867                      300,974

                                    TOTAL                        473,495

The current value per share of stock = Total Present value of future cash flows / Number of shares outstanding

= $473,495 / 15,000 shares outstanding

= $31.57 per share