Smith Technologies is exptected to generate $150 million in freecash f

QUESTION

Smith Technologies is exptected to generate $150 million in freecash flow next year, and FCF is expected to grow at a constant rateof 5 percent per year indefinitely. Smith has no debt orperferred stock, and its WACC is 10 percent. If Smith has 50million shares of stock outstanding, what
FreeCashflow for next year (FCF) = $150,000,000 FCF GrowthRate = 5% (per year indefinitely) Weighted Average Cost ofCapital (WACC) = 10% Total OutstandinShares = 50,000,000 shares Calculating Stocks Valueper share: Total Stock Value =$150,000,000 / (0.10 –

.05) = $150,000,000 / 0.05 = $3,000,000,000 Total Stock Value =$3,000,000,000 Stock Value per Share =$3,000,000,000 / 50,000,000 shares Stock Value per Share = $60per share

ANSWER:

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