Quantitative Problem 2

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Quantitative Problem 2

I’m working on a Accounting exercise and need support.

Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

Year 1 2 3 4 5
FCF -$22.7 $38.2 $43.5 $51.6 $56.9

The weighted average cost of capital is 10%, and the FCFs are expected to continue growing at a 5% rate after Year 5. The firm has $25 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 19 million shares outstanding. Also, the firm has zero non-operating assets. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.

per share

According to the valuation models developed in this chapter, the value that an investor assigns to a share of stock is dependent on the length of time the investor plans to hold the stock.

The statement above is true or false?

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