Acompany is expected to have free cash flows of $0.75 million next year. the weighted average cost of capital is wacc = 10.5%, and the expected constant growth rate is g = 6.4%. the company has $2 million in short-term investments, $2 million in debt, and 1 million shares. what is the stock's current intrinsic stock price? a. $17.39b. $17.84c. $18.29d. $18.75e. $19.22

The stock's current intrinsic price is c. $18.29

Explanation:

Hi, by definition, the intrinsic value of a stock is defined by the present value of its future free cash flows, in our case, for the next year it will be $0.75 million and it will grow at a 6.4% rate, every year, "forever".

SInce there are $2 million in short term investment and $2 million in debt, both amounts cancel out each other therefore, all we have to do is to bring to present value the future free cash flows, as follows.

So the value of all the outstanding share of the company is:

Since there are 1 million shares, each one is worth $18,292,683/1,000,000= $18.29. So the answer is c.

Best of luck.

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