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Determine the intrinsic price per share of common stock. The forecast period is 5 years, spanning fiscal years ending 12/31/24 through 12/31/28. The cost of equity is 8%, long-term growth rate (g) is 3%, and the valuation date is January 1, 2024. Remember, the present value formulas assume free cash flows are completely realized at the end of each fiscal year (12/31) and the valuation date is at the beginning of the first fiscal year (1/1/24).
The five years of the forecast period show free cash flows growing by $3 from $73 in the first period to $85 in the fifth period. Thereafter, free cash flows are assumed to grow by 2% per year forever.
Required: Given these expectations of future performance, what would be the intrinsic price per share of common stock?

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6

.

Determine the intrinsic price per share of common stock. The forecast period is

5

years, spanning fiscal years ending

1

2

/

3

1

/

2

4

through

1

2

/

3

1

/

2

8

.

The cost of equity is

8

%

,

long

-

term growth rate

(

g

)

is

3

%

,

and the valuation date is January

1

,

2

0

2

4

.

Remember, the present value formulas assume free cash flows are completely realized at the end of each fiscal year

(

1

2

/

3

1

)

and the valuation date is at the beginning of the first fiscal year

(

1

/

1

/

2

4

)

.



The five years of the forecast period show free cash flows growing by $

3

from $

7

3

in the first period to $

8

5

in the fifth period. Thereafter, free cash flows are assumed to grow by

2

%

per year forever

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