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An analyst wants to value the common equity for BSecurity Corporation. In the last year, BSecurity generated a free cash flow of $1.50 million. The analyst expects the free cash flows to grow by 20% for each of the next three years. After the third year, free cash flows will grow by 10% each year for the next two years.After the fifth year, free cash flows are assumed to grow at a rate of 2% forever. The cost of capital for BSecurity is 7.00%
Financial data (in millions) for BSecurity Corporation:
Notes payable $1.50Long-term debt $22.50Accounts Payable $0.75Cash $0.25Shareholder Equity $5.00# of Common Shares Outstanding 0.5
Problem 1: What is the terminal value for BSecurity at the end of the fifth year?
Problem 2: What is the enterprise value for BSecurity based on our assumptions?
Problem 3: What is the estimated value per share of BSecurity's common equity given our assumptions?
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