Scarab Technologies is expected to generate $175 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scarab has no debt or preferred stock, and its WACC is 10%. If Scarab has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. How much is each share of common stock is worth dollars, according to the corporate valuation model?
Scarab Technologies is expected to generate $175 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scarab has no debt or preferred stock, and its WACC is 10%. If Scarab has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. How much is each share of common stock is worth dollars, according to the corporate valuation model?
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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Scarab Technologies is expected to generate $175 million in
How much is each share of common stock is worth dollars, according to the corporate valuation model?
Expert Solution
Step 1
Free cash flow next year = 175 million
Growth rate = 7%
WACC=10%
Share outstanding = 45million
Step 2
Value of operations = Free cash flows1÷( Capitalization Rate- growth rate )
= $175 million /(10%-7%)
=$175 million /(.03)
= $5833.3333
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