Selected data for the Derby Corporation are shown below. Use the data to answer the following questions.
INPUTS (In millions) Year
Current Projected
0 1 2 3 4
Free cash flow -$20.0 $20.0 $80.0 $84.0
Marketable Securities $40
Notes payable $100
Long-term bonds $300
Preferred stock $50
WACC 9.00%
Number of shares of stock 40
a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow).
Current Projected
0 1 2 3 4
Free cash flow -$20.0 $20.0 $80.0 $84.0
Long-term constant growth in FCF
Horizon value
b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations.
PV of horizon value
Value of operations (PV of FCF + HV)
c. Calculate the estimated Year-0 price per share of common equity.
Value of operations
Plus value of narketable securities
Total value of company
Less value of debt
Less value of preferred stock
Estimated value of common equity
Divided by number of shares
Price per share