Question

Danielsen's has 15,000 shares of stock outstanding and projected annual free cash flows of $48,200, $57,900, $71,300, and $72,500 for the next four years, respectively. After that, the cash flows are expected to increase at a constant annual rate of 1.6 percent. What is the current value per share of stock at a discount rate of 15.4 percent

Answer 1

Answer:

$31.57 per share

Explanation:

Terminal Value (TV) = CF5(1 + g) / (Ke – g)

= $72,500*(1 + 0.0160) / (0.1540-0.0160)

= $73,660 / 0.1380

= $533,768

Year   Cash Flow    PVF at 15.40%     PV of Free Cash Flow

1           48,200          0.866551                       41,768

2          57,900          0.750911                        43,478

3          71,300           0.650703                      46,395

4          72,500          0.563867                      40,880

4        533,768          0.563867                      300,974

                                    TOTAL                        473,495

The current value per share of stock = Total Present value of future cash flows / Number of shares outstanding

= $473,495 / 15,000 shares outstanding

= $31.57 per share

Answer 2

The equity ownership of the units by the investors in a corporation is called shares. The current value per share at a discount rate of 15.4 % is  $31.57.

What is terminal value?

Terminal value (TV) is the expected cash value in a business, project, and asset that is estimated beyond the forecasted period. The terminal value is calculated as:

$\rm TV =\rm \rm \dfrac{CF5(1 + g)}{(Ke - g)}$

Substituting values in the equation TV is calculated as:

$\begin{aligned} &= \ 72,500 \times \dfrac{(1 + 0.0160)}{(0.1540-0.0160)}\\\\&= \dfrac{\ 73,660}{0.1380}\\\\&= \ 533,768 \end{aligned}$

Check the attached image below for a table of the present value of the cash flow.

The current value is calculated as:

$\begin{aligned}\text{The current value per share of stock} &= \dfrac{\text{Total Present value of future cash flows}}{\text{Number of shares outstanding}}\\\\&= \dfrac{\ 473,495}{15,000 \;\rm shares \; outstanding}\\\\&= \ 31.57 \;\rm per \; share\end{aligned}$

Therefore, $31.57 is the current value per share.

Learn more about cash flow here:

https://brainly.com/question/17192081