Problem - Valuing free cash flow
Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made at the beginning of 2016 are as follows:
|
($ millions)
|
2017
|
2018
|
2019
|
2020
|
2021
|
|
Net income
|
1.0
|
3.3
|
5.8
|
6.3
|
6.6
|
|
Investment
|
1.0
|
2.3
|
2.5
|
2.7
|
2.7
|
|
Free cash flow
|
0
|
1.0
|
3.3
|
3.6
|
3.9
|
Phoenix's recovery will be complete by 2021, and there will be no further growth in free cash flow.
a. Calculate the PV of free cash flow, assuming a cost of equity of 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Present value $ million
b. Assume that Phoenix has 10 million shares outstanding. What is the price per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Price per share $
c. What is Phoenix's P/E ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
P/E ratio