Question

Asked Nov 17, 2019

130 views

**Summarize and discuss the implications of the findings for the business or potential business transaction.**

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McCaffrey's Inc. has never paid a dividend, and when the firm might begin paying dividends is not known. Its current free cash flow (FCF) is $100,000, and this FCF is expected to grow at a constant 7% rate. The weighted average cost of capital (WACC) is 11%. McCaffrey's currently holds $325,000 of non-operating marketable securities. Its long-term debt is $1,000,000, but it has never issued preferred stock. McCaffrey's has 50,000 shares of stock outstanding.

- McCaffrey's value of operations - $2,675,000
- The company's total value - $3,000,000
- The estimated value of common equity - $2,000,000
- The estimated per-share stock price - $40

Step 1

**Computation of McCaffrey’s value of operation:**

Hence, the value of operation is **$2,675,000**.

Step 2

**Computation of total value of the company:**

Hence, the total value is **$3,000,000.**

Step 3

**Computation of estimated value of total equity:**

Hence, the value of equity is **$2,000,000.**

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