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Attempts 2.4
Keep the Highest 2.4/6
4. The multi-stage valuation model
Consider the case of Purple Panda Pharmaceuticals Inc.:
Purple Panda Pharmaceuticals Inc. is expected to generate a free cash flow (FCF) of $130,000 this year, and the FCF is expected to grow at a rate of
12% over the following two years ($FCF_2$ and $FCF_3$). After the third year, however, the company's FCFs are expected to grow at a constant rate of 5%
per year, which will last forever ($FCF_4$-$\infty$). IF Purple Panda's weighted average cost of capital (WACC) is 10%, complete the following table and
compute the current value of Purple Panda's operations. Round all dollar amounts to the nearest whole dollar, and assume that the firm does not have
any nonoperating assets in its balance sheet and that all FCFs occur at the end of each year.
Year
CF
PV(FCFL)
$FCF_1$ $130,000
$FCF_2$
$FCF_3$
$FCF_4$
Horizon Value$_\infty$
$V_{op}$
Purple Panda's debt has a market value of $2,200,443, and Purple Panda has no preferred stock in its capital structure. If Purple Panda has 400,000
shares of common stock outstanding, then the total value of the company's commun equity is S
per share of its common stock is s
per share (rounded to the nearest dollar).
Assume the following:
