your employer, a mid-sized human resources management company,
is considering expansion into related fields, including the
acquisition of Temp Force Company, an employment agency that
supplies word processor operators and computer programmers to
businesses with temporary heavy workloads. your employer is also
considering the purchase of Biggerstaff & McDonald, a privately
held company owned by two friends, each with 5 million shares of
stock. B&M currently has free cash flow of 24 million, which is
expected to grow at a constant rate of 5%. B&M’s financial
statements report short-term investments of $100 million, debt of
$200 Million, and preferred stock of 50 million. B&M’s weighted
average cost of capital is 11%. Answer the following questions You
have just learned that B&M has undertaken a major expansion
that will change its expected free cash flows to -$10 million in
one year, $20 million in 2 years, and $35 million in 3 years. After
3 years, free cash flow will grow at a rate of 5%. No new debt or
preferred stock was added; the investment was fincanced by equity
from the owners. assume the WACC is unchanged at 11% and that there
are still 10 million shares of stock outstanding. 1) what is the
company’s horizon value(i.e. its value of operations at year 3?
what is its current value of operations (i.e. at Time 0)? 2) what
is its estimated intrinsic value of equity on a price-per-share
basis