Exercise #4 (8 points)
Suppose Delta has the following forecasted free cash flows. After year 4, FCF is expected to grow
by 3% forever. The firm's discount rate is 13%. Delta has $300m in non-operating cash on its
balance sheet. It has also issued 10m bonds, each with a market value of $840. If Delta has 45m
shares outstanding, what is its share price today?
Year
FCF (in millions)
1
2
3
4
1,100
1,500
1,000
1,200