Complex finance problem using Excel Valuing Copperhead Corporation: Use the FCF valuation method with multiple growth rates...

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Complex finance problem using Excel
Valuing Copperhead Corporation: Use the FCF valuation methodwith multiple growth rates for Copperhead Corporation, arapidly-growing service firm. Here are the relevant data necessaryto calculate the share price value of Copperhead, utilizing theValuation Method 2: The Price of a Share Is the Discounted Value ofthe Future Anticipated FCFs.
Valuing Copperhead Corporation
2014 FCF (base year)
$2,500,000
High growth rate, g_high
30%
Normal growth rate, g_normal
11%
Number of high-growth years
5
WACC
18%
End-2014 debt
$3,500,000
End-2014 cash
$1,750,000
Number of shares (end-2014)
2,400,000

Answer & Explanation Solved by verified expert

3.7 Ratings (343 Votes)

	WACC=	18.00%
Year	Previous year FCF	FCF growth rate	FCF current year	Horizon value	Total Value	Discount factor	Discounted value
1	2500000	30.00%	3250000		3250000	1.18	2754237.288
2	3250000	30.00%	4225000		4225000	1.3924	3034329.216
3	4225000	30.00%	5492500		5492500	1.643032	3342905.068
4	5492500	30.00%	7140250		7140250	1.93877776	3682861.516
5	7140250	30.00%	9282325	147191153.6	156473478.6	2.287757757	68395999.58
	Long term growth rate (given)=	11.00%			Value of Enterprise =	Sum of discounted value =	81210332.67

Where
Current FCF =Previous year FCF*(1+growth rate)^corresponding year

Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 5 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

Enterprise value = Equity value+ MV of debt

- Cash & Cash Equivalents

81210332.67 = Equity value+3500000-1750000

Equity value = 79460332.67

share price = equity value/number of shares

share price = 79460332.67/2400000

share price = 33.11

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Transcribed Image Text

Complex finance problem using ExcelValuing Copperhead Corporation: Use the FCF valuation methodwith multiple growth rates for Copperhead Corporation, arapidly-growing service firm. Here are the relevant data necessaryto calculate the share price value of Copperhead, utilizing theValuation Method 2: The Price of a Share Is the Discounted Value ofthe Future Anticipated FCFs.Valuing Copperhead Corporation2014 FCF (base year)$2,500,000High growth rate, ghigh30%Normal growth rate, gnormal11%Number of high-growth years5WACC18%End-2014 debt$3,500,000End-2014 cash$1,750,000Number of shares (end-2014)2,400,000

Valuing Copperhead Corporation
2014 FCF (base year)	$2,500,000
High growth rate, g_high	30%
Normal growth rate, g_normal	11%
Number of high-growth years	5

WACC	18%
End-2014 debt	$3,500,000
End-2014 cash	$1,750,000

Number of shares (end-2014)	2,400,000