Question 2
RCI is a multinational producer of widgets. It expects free cash flow next year of $150 million, $230 million the following year, $300 million in three years from now. After that, free cash flow is expected to grow at 2% per year forever. The appropriate discount rate is 9%.
a) What is the enterprise value of RCI?
b) RCI previously raised capital in both the equity and debt markets. It has 40 million shares of common stock outstanding. It also has long-term bonds outstanding that are valued at $700 million. What is the fair price per share of RSI?
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