You Have Been Assigned the Task of Using the Corporate

question 29

Multiple Choice

You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

• A) $40.35
• B) $41.82
• C) $43.33
• D) $44.85
• E) $46.42

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Definitions:

Secondary Market

Already existing securities are bought and sold on the exchanges or in the OTC market.

AMEX

The American Stock Exchange, a stock exchange in the United States where stocks and options are traded.

Market Order

A buy or sell order to be executed immediately at current market prices.

Limit-Sell Order

A stock market order to sell a security when it reaches a certain price, used to lock in profits or limit losses.