Answer:
Find attached full question:
The correct option is D.$42.79
Explanation:
In order to determine the current price per share of the company now,we discount all future free cash flows to present value as well as the company's terminal value:
company's terminal is the value of the company after the considered timing horizon
terminal value=free cash in year three*(1+g)/r-g
free cash flow in year three is $40 million
g is the growth rate of free cash flow which is 7%
r is the WACC of 13%
terminal value=40*(1+7%)/(13%-7%)=$ 713.33 million
Present of the company=-$20/(1+13%)+$30/(1+13%)^2+$40/(1+13%)^3+$713.33/(1+13%)^3=$ 527.89 million
The company's value of equity=present worth-debt== 527.89-100=427.89 million
share price=value of equity/number of shares== 427.89/10=$42.79
