Home Mortgage Corp. forecasts the free cash flows (in millions) shown
below. The weighted average cost of capital is 13.0%, and the FCFs are
expected to continue growing at a 5.0% rate after year 3. The company
has $100 million of long-term debt plus preferred stock outstanding, and
there are 20 million shares of common stock outstanding. What is the
firm’s estimated intrinsic value per share of common stock?
FCFsYear 1 = -$15Year 2 = $10Year 3 = $ 40