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FIN – Derby Corporation Problem

Selected data for the Derby Corporation are shown below. Use the data to answer the following questions.       INPUTS (In millions) Year  CurrentProjected  01234Free cash flow  -$20.0$20.0$80.0$84.0Marketable Securities $40    Notes payable $100    Long-term bonds $300    Preferred stock $50    WACC  9.00%    Number of shares of stock40           a.  Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow).         CurrentProjected  01234Free cash flow  -$20.0$20.0$80.0$84.0Long-term constant growth in FCF     Horizon value             b.  Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations.       PV of horizon value      PV of FCF      Value of operations (PV of FCF + HV)            c.  Calculate the estimated Year-0 price per share of common equity.       Value of operations      Plus value of narketable securities     Total value of company     Less value of debt      Less value of preferred stock     Estimated value of common equity     Divided by number of shares     Price per share 

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