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Bully-Dozer: Current Market Value of Operations

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Bully-Dozer is a leading manufacturer of earth moving equipment. Analysts project the following free cash flows during the next three years, after which free cash flow is expected to grow at a constant rate of 5% a year. Bully's weighted average cost of capital is 14%.

Year 1 2 3

Free cash flow ($ mill) ($20) $10 $15

a. What is the current market value of Bull-Dozer's operations?
b. Suppose Bully has $5 million in marketable securities, $50 million in debt, and 1 million shares of stock outstanding. Given these conditions, what is the current price per share of Bully-Dozer's common stock?


Solution Summary

The solution calculates the Current Market Value of Operations of Bully-Dozer by Valuing Free Cash Flow