Free cash flows (FCF) = EBIT(1 - T) + Depreciation - (capital expenditure + increase in net working capital) Barrett Industries invests a large sum of money in R&D. As a result, it retains and reinvests all its earnings. In other words, Barrett does not pay any dividends and it has no plans to pay dividends soon. Suppose that a major pension fund is interested in purchasing Barrett' stock. The manager estimates Barrett's free cash flows for the next four years as follows: exist50, exist150, exist190, and exist250. After the fourth year, free cash flow is projected to grow at a rate of 5 percent. Barrett's WACC is 12 percent, its debt and preferred stock total exist400, and it has 100 shares of common stock outstanding.
What is the present value of the free cash flow projected during the next 3 years?
What is the firm's total value today?
What is an estimate of Barrett's price per share?