Company book values of debt and preferred stocks

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ABC's most recent free cash flow (FCF0) is $100 million. The free cash flow is expected to grow at a rate of 30 percent in next year and 20 percent in the second year. After two years, it is expected to grow forever at a constant rate of 5 percent. The cost of common stock (rs) is 12% and the weighted average cost of capital (WACC) is 10%. ABC’s balance sheet shows $20 million in short-term investments that are unrelated to operations. The balance sheet also shows $150 million in debt, $50 million in preferred stocks, and $200 million in common stocks. If the company has 50 million shares of common stocks, what is your best estimate for the stock price per share today? Assume that company’s book values of debt and preferred stocks are very close to the market values. Please solve the problem without using Excel.

Reference no: EM131962296

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