Company has the following cash flow stream. CF1 = 442 CF2 = 663 CF3 = 875...

Company has the following cash flow stream.

CF1 = 442

CF2 = 663

CF3 = 875

CF4 = 990

Cash flow is expected to be constant after year 4, with a growth rate of 4%. The WACC is 10%. In addition, the company has 32 millions in cash, and 32 millions debt, with 58 millions shares outstanding. What is the stock price, P0 , today?

Expert Solution

Enterprise Value(EV) = [CF1/(1+WACC)] + [CF2/(1+WACC)²] + [CF3/(1+WACC)³] + [CF4/(1+WACC)⁴] + [{CF4*(1+g)}/{(WACC-g)*(1+WACC)⁴}]

= [442/(1+0.10)] + [663/(1+0.10)²] + [875/(1+0.10)³] + [990/(1+0.10)⁴] + [{990*(1+0.04)}/{(0.10-0.04)*(1+0.10)⁴}]

= 401.82 + 547.93 + 657.40 + 676.18 + 11,720.51 = $14,003.85 million

Equity Value = EV - Value of Debt + Cash

= 14,003.85 - 32 + 32 = $14,003.85 million

Share Price = Equity Value / Shares Outstanding = 14,003.85 / 58 = $241.45

jeff jeffy answered 2 years ago

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