Due to the highly specialized nature of the electronic industry, Borrett Industries invest a lot of money in R&D on prospective products. Consequently, it retains all of its earning and reinvests them into the firm. At this time, Borrett does not any plans to pay dividends in the near future. A major pension fund is interested in purchasing Borrett's stock, which is traded on the NYSE. The treasurer for the pension fund has done research on the company and has estimated Borrett's free cash flow for the next four years as follows: $3 million, $6 million, $10 million and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7 percent. Borrett's WACC is 12 percent, it has $60 million of total debt and preferred stock and 10 million shares of common stock.
A. What is the present value of Borrett's free cash flows during the next four years?
B. What is the company's terminal value?
C. What is the total value of the firm today?
D. What is Borrett's price per share?
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