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## The University of Tennessee Knoxville Basic Stock Valuation Problems Questions I have attached the problems in the attachments, Basic Stock Valuation: Free

The University of Tennessee Knoxville Basic Stock Valuation Problems Questions I have attached the problems in the attachments, Basic Stock Valuation: Free Cash Flow Valuation Model, Constant growth stocks, Market multiple analysis, The multi-stage valuation model, Corporate valuation model, Fundamentals of the free cash flow corporate valuation model Quantitative Problem 1: Assume today is December 31, 2017. Barrington Industries expects that its
2018 after-tax operating income [EBIT(1 – T)] will be \$400 million and its 2018 depreciation expense
will be \$70 million. Barrington’s 2018 gross capital expenditures are expected to be \$110 million and
the change in its net operating working capital for 2017 will be \$25 million. The firm’s free cash flow
is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs at the
end of each year. The firm’s weighted average cost of capital is 8.3%; the market value of the
company’s debt is \$2.9 billion; and the company has 180 million shares of common stock
outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for
future capital budgeting projects. Using the free cash flow valuation model, what should be the
company’s stock price today (December 31, 2017)? Do not round intermediate calculations. Round
\$ ____ per share
Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown
below.
Year
1
2
3
4
5
FCF
-\$22.54
\$37.9
\$43.3
\$52.9
\$56.5
The weighted average cost of capital is 9%, and the FCFs are expected to continue growing at a 5%
rate after Year 5. The firm has \$24 million of market-value debt, but it has no preferred stock or any
other outstanding claims. There are 20 million shares outstanding. What is the value of the stock
price today (Year 0)? Do not round intermediate calculations. Round your answer to the nearest
cent.
\$_____ per share
According to the valuation models developed in this chapter, the value that an investor assigns to a
share of stock is dependent on the length of time the investor plans to hold the stock.
The statement above is (T/F)