Based on the Information Provided, Calculate the Intrinsic Value in 2004

question 67

Multiple Choice

Based on the information provided, calculate the intrinsic value in 2004 of a share of INV Corp. using the FCFF (free cash flow to the firm) model. For 2009 the FCFF was $30,000, total debt was $20,000, and there were 12000 shares outstanding. The required rate of return is 9% and the estimated growth rate in FCFF is 6.5%.

• A) $104.83
• B) $153.25
• C) $112.50
• D) $94.92
• E) $80.45

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Definitions:

Net Realizable Value

The estimated selling price of goods minus any costs associated with their sale or disposal.

Merchandise

Goods that are bought and sold in the course of business, often referred to in the context of retail or wholesale trading.

Lower of Cost or Market

An accounting principle stating that inventory should be recorded at either its historical cost or its market value, whichever is lower.

Inventory

Items such as raw materials, work-in-progress, and finished goods that a company holds for the purpose of sale in the ordinary course of business.