Question

You have the following data: FCF1 = $-2 million; FCF2 = $2 million; FCF3 = $4 million; FCF4 = $6 million; free cash flow grows at a rate of 3% for year 5 and beyond. The weighted average cost of capital is 10%. Assume they have 15 million in debt and 7 million shares outstanding. Find the price per share.

The answer is $7.46. Not sure how to do the work.

Answer 1

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