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Answer:
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6
.
Determine the intrinsic price per share of common stock. The forecast period is
5
years, spanning fiscal years ending
1
2
/
3
1
/
2
4
through
1
2
/
3
1
/
2
8
.
The cost of equity is
8
%
,
long
-
term growth rate
(
g
)
is
3
%
,
and the valuation date is January
1
,
2
0
2
4
.
Remember, the present value formulas assume free cash flows are completely realized at the end of each fiscal year
(
1
2
/
3
1
)
and the valuation date is at the beginning of the first fiscal year
(
1
/
1
/
2
4
)
.
The five years of the forecast period show free cash flows growing by $
3
from $
7
3
in the first period to $
8
5
in the fifth period. Thereafter, free cash flows are assumed to grow by
2
%
per year forever
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