Use the data below to estimate the weighted average cost of capital (WACC). You will estimate the cost of equity as an average of the cost equity results obtained from the CAPM approach and from the DCF approach as discussed in class.

P0 = 150, rRF = 3%, g = 2%, D0 = $13, t = 35%, ws = 60%, wd = 40%, rd = 7%, rM = 9%, b = 1.45 considering that P0 is the cutrent price of the stock, rRF is the risk free, g is the dividend growth rate, D0 is the last dividend paid, t is the corporate tax rate on income, ws is the ratio of equity to the total capital structure, wd is the weight of debt in the capital structure, rd is the nominal rate of debt, rM the return on the S&P500, and b is the stock beta.

2) Use the result from above question and the value from the table below to compute the following:

1. The Intrinsic Value of the Firm (Present value of the cash flows) (Use WACC as the discount rate)

2. The Value of equity assuming that the value of debt is $6,049.93

3. The price per share if the company has 150 shares outstanding

4. Compare the price per share you from your result to P0 of question 14. Is the stock currently overvalued or undervalued assuming your work in question 15 is accurate?

Years

1

2

3

4

5

FCF

1,500

2,500

-500

1,500

2,000

Terminal Value

           
30,994

Total

1,500

2,500

-500

1,500

32,994