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Would recommend buying if stock is currently trading

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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.

Reference no: EM132729053

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