solution

9. Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2019 are as follows:

Net income 1.0 2.5 4.2 4.7 5.0

Free cash flow 1.0 1.0 2.5 2.8 3.1

Phoenixâ€™s recovery will be complete by 2024, and there will be no further growth in net income or free cash flow.

a. Calculate the PV of free cash flow, assuming a cost of equity of 10%.

b. Assume that Phoenix has 12 million shares outstanding. What is the price per share?

($ Millions) 2020 2021 2022 2023 2024

Net Income 1.00 2.5 4.2 4.7 5.0

Investment 1.0 1.5 1.7 1.9 1.9

Free Cash Flow 1.0 1.0 2.5 2.8 3.1

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