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Finance Assignment | Top Essay Writing

Using the free cash flow valuation model to price an IPO Personal Finance Problem: Assume that you have an opportunity to buy the stock of​ CoolTech, Inc., an IPO being offered for ​$5.15 per share. Although you are very much interested in owning the​company, you are concerned about whether it is fairly priced.

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To determine the value of the​ shares, you have decided to apply the free cash flow valuation model to the​ firm’s financial data that​you’ve accumulated from a variety of data sources. The key values you have compiled are summarized in the following table:

a. Use the free cash flow valuation model to estimate​CoolTech’s common stock value per share.

b.  Judging by your finding in part a and the​ stock’s offering​price, should you buy the​ stock?

c. On further​ analysis, you find that the growth rate in FCF beyond 2023 will be 6​% rather than 5% hat effect would this finding have on your responses in parts a and b​?

year FCF

2020   720,000
2021   810,000
2022   950,000
2023   1,040,000
Other Data:

Growth rate of FCF, beyond 2023 to infinity = 5%

Weighted avg cost of capital = 12%

Market Value of all debt = $2,510,000

Market value of preferred stock = $1,000,000

Number of shares of common stock issued = 1,100,000. Get Finance homework help today

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