Share
Explore BrainMass

Value of the company today

Barrett Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Barrett does not pay any dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Barrett's stock. The pension fund manager has estimated Barrett's free cash flows for the next 4 years as follows: 3 millions, 6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Barrett's required return is 12%, its debt and preferred stock total $60 million, and it has 10 million shares of common stock outstanding.
a) Determine the value of the company today.
b) What is an estimate of Barrett's price per share?

Solution Preview

Barrett Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Barrett does not pay any dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Barrett's stock. The pension fund manager has estimated Barrett's free ...

Solution Summary

Response helps in estimating value of the company today

$2.19