Assume that today is December 31, 2015, and that the following information applies to Vermeil Airlines:
- After-tax operating income [EBIT (1-T)] for 2016 is expected to be $500 million.
- The depreciation expense for 2016 is expected to be $100 million.
- The capital expenditures for 2016 are expected to be $200 million.
- No change is expected in networking capital.
- The free cash flow is expected to grow at a constant rate of 6% per year.
- The required return on equity is 14%.
- The WACC is 10%.
- The market value of the company’s debt is $5 billion.
- 200 million shares of stock are outstanding.
Using the corporate valuation model approach, what should be the company’s stock price today?
A) $25
B) $20
C) $18
D) $23
E) $28