The problem describes Zebra Inc., which expects to generate free cash flow of $460,000 per year forever. The firm's cost of capital (WACC) is 9% (0.09). The market value of debt is $200,000, and the market value of preferred stock is $180,000. The company has 100,000 shares of stock outstanding. We are asked to find the value of the firm and the value of common stock per share.

1. Problem Description

The problem describes Zebra Inc., which expects to generate free cash flow of $460,000 per year forever. The firm's cost of capital (WACC) is 9$200,000, and the market value of preferred stock is $180,

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0. The company has 100,000 shares of stock outstanding. We are asked to find the value of the firm and the value of common stock per share.

2. Solution Steps

Step 1: Calculate the total value of the firm.

Since the free cash flow is expected to be constant forever, we can use the perpetuity formula:

$Value of Firm = \frac{Free Cash Flow}{WACC}$

Value of Firm = \frac{460,000}{0.09}$

$Value of Firm =$5,111,111.11$

Step 2: Calculate the value of common stock.

$Value of Common Stock = Value of Firm - Value of Debt - Value of Preferred Stock$

$Value of Common Stock =$5,111,111.11 - $200,000 -$180,000$

$Value of Common Stock =$4,731,111.11$

Step 3: Calculate the value of common stock per share.

$Value of Common Stock Per Share = \frac{Value of Common Stock}{Number of Shares}$

Value of Common Stock Per Share = \frac{4,731,111.11}{100,000}$

$Value of Common Stock Per Share =$47.31$

3. Final Answer

Value of the firm: $5,111,111.11

Value of common stock per share: $47.31