You have the following data: FCF1 = $-2 million; FCF2 = $2 million; FCF3 = $4...

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Finance

You have the following data: FCF1 = $-2 million; FCF2 = $2million; FCF3 = $4 million; FCF4 = $6 million; free cash flow growsat a rate of 3% for year 5 and beyond. The weighted average cost ofcapital is 10%. Assume they have 15 million in debt and 7 millionshares outstanding. Find the price per share.
The answer is $7.46. Not sure how to do the work.

Answer & Explanation Solved by verified expert

4.2 Ratings (884 Votes)

please find below the solution..

	i	ii	iii	iv=ii+iii	v	vi=v*iv
	year	Dividend	Terminal value	Total cash flow	PVIF @ 10%	present value
	1	(2.00)	-	(2.00)	0.909091	(1.82)
	2	2.00	-	2.00	0.826446	1.65
	3	4.00	-	4.00	0.751315	3.01
	4	6.00	88.29	94.29	0.683013	64.40

						67.24
	Computation of terminal value = expected dividend in year 3/(required rate - growth rate)
			=6*103%/(10%-3%)
			88.29

i	Value of firm =		$ 67.24

ii	Value of debt		15
iii=i-ii	Value of equity		$ 52.24
iv	Number of share =		$ 7.00
v=iii/iv	Price per share =		$ 7.46

	therefore answer =			$ 7.46

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You have the following data: FCF1 = $-2 million; FCF2 = $2million; FCF3 = $4 million; FCF4 = $6 million; free cash flow growsat a rate of 3% for year 5 and beyond. The weighted average cost ofcapital is 10%. Assume they have 15 million in debt and 7 millionshares outstanding. Find the price per share.The answer is $7.46. Not sure how to do the work.