If a company has the following current Free Cash Flow and the additional information provided, what is...

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Finance

If a company has thefollowing current Free Cash Flow and the additional informationprovided, what is the price per share?

FCF Year 1 = $145,000
Expected growth ratesYr 2: 12.70%
                                         Yr 3: 14.10%
                                         Yr 4: 9.60%
                                          Yr5: 10.25%
Yr 6: 8.40%

WACC 10.85%
ROE 18.15%
Plowback 38.00%

ST investments $86,000
LT Debt         $265,000
Pfd Stock         $32,000
# of shares 105,000

Answer & Explanation Solved by verified expert

4.1 Ratings (691 Votes)

growth rate = 18.15%*0.38 = 6.897%

Discount rate	10.8500%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
-	0	-	-
145,000.000	1	130,807.40	130,807.40
163,415.000	2	132,990.47	263,797.868
186,456.515	3	136,889.61	400,687.473
204,356.340	4	135,345.97	536,033.443
225,302.865	5	134,613.38	670,646.82
244,228.306	6	131,638.16	802,284.985
6,604,420.245	6	3,559,758.33	4,362,043.32

terminal value = 224,228.306*1.06897/(0.1085-0.06897)

value of firm = 4,362,043.32

value of equity = 4,362,043.32 - 86,000 - 265,000 - 32,000 = 3,979,043.32

value per share = 3,979,043.32/105,000 = 37.90

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Transcribed Image Text

If a company has thefollowing current Free Cash Flow and the additional informationprovided, what is the price per share?FCF Year 1 = $145,000Expected growth ratesYr 2: 12.70% Yr 3: 14.10% Yr 4: 9.60% Yr5: 10.25%Yr 6: 8.40%WACC 10.85%ROE 18.15%Plowback 38.00%ST investments $86,000LT Debt $265,000Pfd Stock $32,000# of shares 105,000