enterprise value and equity value for General Mills at the beginning of 2006 under two forecasts for long-run cash flows

Question: A Discounted Cash Flow Valuation: General Mills, Inc. (Medium) At the beginning of its fiscal year 2006, an analyst made the following forecast for General Mills, Inc., the consumer foods company, for 2006-2009 (in millions of dollars):

General Mills reported $6, 192 million in short-term and long-term debt at the end of 2005 but very little in interest-bearing debt assets. Use a required return of9 percent to calculate both the enterprise value and equity value for General Mills at the beginning of2006 under two forecasts for long-run cash flows:

a. Free cash flow will remain at 2009 levels after 2009.

b. Free cash flow will grow at 3 percent per year after 2009.

General Mills had 369 million shares outstanding at the end of 2005, trading at $47 per share. Calculate value per share and a value-to-price ratio under both scenarios.

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