Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $15.96 per share. Although you very much interested in owning the company,are concerned about whether it is fairly priced. To determine the value of the shares, you have decided to apply the free cash flow valuation model to the firm's financial data that you've accumulated from a variety of data sources. The key values you have compiled aresummarized in the following table,a. Use the free cash flow valuation model to estimate CoolTech's common stock value per share.b. Judging by your finding in part a and the stock's offering price, should you buy the stock?c. On further analysis, you find that the growth rate in FCF beyond 2023 will be 7% rather than 6%. What effect would this finding have on your responses in parts a and b?a. The value of CoolTech's entire company is $. (Round to the nearest dollar.)C Free cash flowFCFYear (t)2020202120222023$710,000$850,000$950,000$1,090,000Other dataGrowth rate of FCF, beyond 2023 to infinity = 6%Weighted average cost of capital = 9%Market value of all debt = $6,030,000Market value of preferred stock = $2,410,000Number of shares of common stock to be issued = 1,100,000

A firm's value is an economic concept that reflects the value of an organization. It is the worth of…

Answered: Ising the free cash flow valuation…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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