Question

FCF1 = 26

g = 0.085
WACC=rs = 0.11
Value of Firm = FCF1/(rs -g) = 26/(0.11-0.085) = 1,040
Stock value = (Firm's value - Debt value )/# of shares = (1040 - 200)/30 = 28"
What is the value of the stock?
1) 26
2) 28
3) 30
4) 32

Answer 1

The value of the stock is calculated by subtracting the debt value from the firm's value and then dividing it by the number of shares. Based on the given formula and calculations, the value of the stock is 28.

Step-by-step explanation:

The calculation to determine the value of the stock considers the Free Cash Flow to Firm (FCF1), Weighted Average Cost of Capital (WACC, denoted as rs), growth rate (g), firm value, debt value, and the number of shares outstanding. In the given scenario, the firm's value is calculated using the formula Value of Firm = FCF1 / (rs - g), which results in a firm value of 1,040. From this, the debt value is subtracted, and the result is then divided by the number of shares (30) to find the stock value which comes out to 28.

Using the student's provided calculation,

Stock value = (Firm's value - Debt value) / # of shares = (1040 - 200) / 30 = 28

Therefore, the correct answer is 28.