Reference no: EM132729053

You are tasked with estimating the value of a stock. Specifically, estimate the common stock's per-share value using the free cash flow model. Use the following assumptions to perform your computation:

• You project EBIT to be $3,000,000 next year.
• Their depreciation expense will be $900,000 next year. Their tax rate is 25%. 
• You project their capital expenditures to be $395,000. 
• They currently have $210,000 in cash, and they do not have any debt. 
• They have preferred stock, which is valued at $1,500,000. The change in net working capital is $500,000. 
• You calculate their WACC (discount rate) to be 8% and estimate that free cash flows will grow by 4% a year. 
• The company has 750,000 common shares outstanding.

Question 1: If this stock is currently trading at $80 per share, would you recommend buying it? Provide a brief explanation for your recommendation.