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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

Phoenix’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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