Business, 05.11.2019 03:31, Jsusussueususu

Decker tires' free cash flow was just fcf0 = $1.32. analysts expect the company's free cash flow to grow by 30% this year, by 10% in year 2, and at a constant rate of 5% in year 3 and thereafter. the wacc for this company 9.00%. decker has $4 million in short-term investments and $14 million in debt and 1 million shares outstanding. what is the best estimate of the stock's current intrinsic price? a. $31.59b. $32.65c. $33.75d. $34.87e. $35.99

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answered: Atromity

d. $34.87

Explanation:

We need to calcualte the value of the company. This is done by addingthe present vbalue of the future free cash flow of the firm.

FCF0 = 1.32 (current accounting period)

FCF 1.32 + 30% = 1.716

FCF2 FCF1 + 10% = 1.716 x 1.1 = 1.8876‬

FCF3 FCF + 5% = 1.8876 x 1.05 = 1.98198‬

From here after we use the gordon model:

$\frac{divends}{return-growth} = Intrinsic \: Value$

WACC = 9%

grow = 5%

we use FCF instead of dividends: 1.98198

$\frac{1.98198}{0.09-0.05} = Intrinsic \: Value$

Value of the future cash flow 49,5495

Now, as this are in the future we must adjust using the present value of a lump sum:

$\frac{1.716}{(1 + 0.09)^{1} } = PV$

PV 1.5743

$\frac{1.8876}{(1 + 0.09)^{2} } = PV$

PV 1.5888

$\frac{49.5495}{(1 + 0.09)^{2} } = PV$

PV 41.7048

Total: 1.5743 + 1.5888 + 41.7048 = 44,8679‬

Now we adjust for shrot term investment and debt outstanding:

vresent value of the future cash flow 44,8679‬

short term investment: 4.0000

debt outstanding (14.000)

Net: 34.8679

answered: Guest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

answered: Guest

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Decker tires' free cash flow was just fcf0 = $1.32. analysts expect the company's free cash flow to...