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    Calculate free cash flow

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    An analyst makes the following forecasts of cash flows for a firm with $2 billion of debt at the end of 2006 (in millions of dollars):

    2007 2008 2009
    Cash flow from operations $1,460 $1,680 $1,780
    Cash investment $ 580 $ 585 $ 805

    The free cash flow will grow at a rate of 4% per year after 2009. The required rate of return is 10%.
    Calculate the value per share of the firm if it has 2,350 million outstanding shares.

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    Solution Preview

    An analyst makes the following forecasts of cash flows for a firm with $2 billion of debt at the end of 2006 (in millions of dollars):

    2007 2008 2009
    Cash flow from operations $1,460 $1,680 $1,780
    Cash investment $ 580 $ 585 $ 805

    The free cash flow ...

    Solution Summary

    This provides the steps to calculate free cash flow.

    $2.19

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