BB Stock – Solved: Bahama Baubles (BB) Reinvests All Of Its Earnings …
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Bahama Baubles (BB) reinvests all of its earnings and does not pay any dividends nor has plans to pay dividends in the near future. An investment banker has approached BB regarding purchasing a significant amount of its stock The investment banker’s firm has estimated BB’s free cash flows for next 4 years as follows: $3 million, $6 million, $10 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7%. BB’s WACC is 12 %, the market value of its debt and preferred stock totals $60 million, and it has 10 million shares of common stock outstanding. a. What is the present value of the free cash flows projected during the next 4 years? b. What is the firm’s continuing value? C. What is the firm’s total value? d. What is an estimate of Bahama Bauble’s price per share?