Problem Finance Re-Work

Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made at the beginning of  2016 are as follows:

  ($ millions)

2017

2018

2019

2020

2021

  Net income

1.0    

3.3    

5.8    

6.3    

6.6    

  Investment

1.0    

2.3    

2.5    

2.7    

2.7    

  Free cash flow

0    

1.0    

3.3    

3.6    

3.9    

Phoenix’s recovery will be complete by 2021, and there will be no further growth in free cash flow.

a.

Calculate the PV of free cash flow, assuming a cost of equity of 10%. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

  Present value

$ million  

b.

Assume that Phoenix has 10 million shares outstanding. What is the price per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Price per share

$  

c.

What is Phoenix’s P/E ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  P/E ratio