What is your best estimate for the stock

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Question: ABC's the most recent free cash flow (FCF0) is $200 million. The free cash flow is expected to grow at a rate of 40 percent in next year and 20 percent in the second year. After two years, it isexpected 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 9%. ABC's balance sheet shows $20 million in short-term investments that are unrelated to operations. The balance sheet also shows$100 million in debt, $50 million in preferred stocks, and $250 million in common stocks. If thecompany has 40 million shares of common stocks, what is your best estimate for the stock priceper share today? Assume that company's book values of debt and preferred stocks are very close to the market values.

Reference no: EM131931562

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