Smith Technologies is expected to generate 150 million in frreecash ne

QUESTION

Smith Technologies is expected to generate 150 million in frreecash next year, and FCF is expected to grow at a constant rate of 5percent per year indefinitely. Smith has no debt or preferredstock, and its WACC is 10 percent. If Smith has 50 million sharesof stock outstanding, what is the stocks va
step1:Given the smith technologies is expected togenerate 150 million in free cash next year and also given that FCFis expected to grow at 5% per year indefinitely.step2:So from step 1 we can clearly understand that period isindefinite means it is present value of growingperpetuitystep3:Now find out present value of growing perpetuitystep4:Formula is PV=A/i-g where A is annuity,i is

st rate ,g is growth ratestep5_PV=150/i-0.05step6:but we know that WACC=Kd(1-T)Wd We (Ke)step7:given WACC IS 10% and it has no debt so cost of debt is0step8:So now WACC=We(Ke)step9:So( We )that is weight of equity is 100% sincethere is no debt step10:Ke =DIV/Po g

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