Using the free cash flow valuation model to price an IPO Assume
that

you have an opportunity to buy the stock of Cool Tech, Inc.,
an IPO

being offered for $12.50 per share. Although you are very
much

interested in owning the company, you are concerned about
whether it is

fairly priced. 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 developed from a variety of data sources. The key
values you

have compiled are summarized in the following table.Free cash
flowYear (t)FCFtOther data2013$700,000Growth rate of FCF, beyond
2013 to infinity 2%2014800,000Weighted average cost of capital =
8%2015950,000Market value of all debt =
$2,700,00020161,100,000Market value of preferred stock =
$1,000,000Number of shares of common stock outstanding =
1,100,000a. Use the free cash flow valuation model to estimate Cool
Tech’s common stock value per share.b. Judging on the basis of 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 2016

will be 3% rather than 2%. What effect would this finding
have on your

responses in parts a and b?

Using the free cash flow valuation model to price an IPO Assume
that

you have an opportunity to buy the stock of Cool Tech, Inc.,
an IPO

being offered for $12.50 per share. Although you are very
much

interested in owning the company, you are concerned about
whether it is

fairly priced. 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 developed from a variety of data sources. The key
values you

have compiled are summarized in the following table.Free cash
flowYear (t)FCFtOther data2013$700,000Growth rate of FCF, beyond
2013 to infinity 2%2014800,000Weighted average cost of capital =
8%2015950,000Market value of all debt =
$2,700,00020161,100,000Market value of preferred stock =
$1,000,000Number of shares of common stock outstanding =
1,100,000a. Use the free cash flow valuation model to estimate Cool
Tech’s common stock value per share.b. Judging on the basis of 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 2016

will be 3% rather than 2%. What effect would this finding
have on your

responses in parts a and b?

Using the free cash flow valuation model to price an IPO Assume
that

you have an opportunity to buy the stock of Cool Tech, Inc.,
an IPO

being offered for $12.50 per share. Although you are very
much

interested in owning the company, you are concerned about
whether it is

fairly priced. 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 developed from a variety of data sources. The key
values you

have compiled are summarized in the following table.Free cash
flowYear (t)FCFtOther data2013$700,000Growth rate of FCF, beyond
2013 to infinity 2%2014800,000Weighted average cost of capital =
8%2015950,000Market value of all debt =
$2,700,00020161,100,000Market value of preferred stock =
$1,000,000Number of shares of common stock outstanding =
1,100,000a. Use the free cash flow valuation model to estimate Cool
Tech’s common stock value per share.b. Judging on the basis of 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 2016

will be 3% rather than 2%. What effect would this finding
have on your

responses in parts a and b?

you have an opportunity to buy the stock of Cool Tech, Inc.,
an IPO

being offered for $12.50 per share. Although you are very
much

interested in owning the company, you are concerned about
whether it is

fairly priced. 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 developed from a variety of data sources. The key
values you

have compiled are summarized in the following table.Free cash
flowYear (t)FCFtOther data2013$700,000Growth rate of FCF, beyond
2013 to infinity 2%2014800,000Weighted average cost of capital =
8%2015950,000Market value of all debt =
$2,700,00020161,100,000Market value of preferred stock =
$1,000,000Number of shares of common stock outstanding =
1,100,000a. Use the free cash flow valuation model to estimate Cool
Tech’s common stock value per share.b. Judging on the basis of 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 2016

will be 3% rather than 2%. What effect would this finding
have on your

responses in parts a and b?