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April 18, 2014

Homework Help: STOCKS & BONDS

Posted by Yinka on Thursday, November 15, 2012 at 10:19am.

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 four years as follows: $3 million, $6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7% Barrett's WACC is 12%, its debt and preferred stock total $60 million, and it has 10 million shares of common stock outstanding. Required: a) Determine Barrett's enterprise value b) Estimate Barrett's price per share of common stock.

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