(See attached file for full problem description)
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?
The solution calculates the Current Market Value of Operations of Bully-Dozer by Valuing Free Cash Flow