Question

You are trying to value Apple’s stock as of the end of their fiscal year 2018. You’ve calculated their EBITDA from 2016 to 2018 as $61,429, $83,772, and $71,877. You’ve forecast their future EBITDA for the next five years as $81,312, $89,493, $98,496, $108,406, and $119,313. You’ve calculated their unlevered free cash flows from 2016 to 2018 as $44,932, $65,051, and $43,942. You’ve forecast their future unlevered FCFs for the next five years as $45,303, $58,936, $64,865, $71,391, and $78,574. You believe that the FCF in the first year after your forecast horizon will be $82,503, and the FCFs will grow at a constant rate of 5% forever after that time. You’ve calculated the firm’s WACC (discount rate) as 15%. The company currently has $100,000 in capital structure debt, $250,000 in total liabilities, $25,000 in cash, $100,000 in current assets, no minority interest, no employee stock options outstanding, and 3,000 shares outstanding. What is Apple’s implied stock price per share, based on this information? What is their implied price per share if you calculate the terminal value assuming an EBITDA multiple of 7? What is the implied stock price if you value the firm today using an EV/EBITDA multiple of 8? Show your work (you can do this in Excel if you’d like, just include all of your work).

If you could show me the process to this that would be greatly appreciated, Thanks

Answer 1

First Part:

Valuation of Apple's stock using Discounted cash flows method:

In the question, we have been given unlevered free cash flows which means these free cash flows are attributable to both debt and shareholders. So, discounting these free cash flows by WACC will give us Enterprise Value.

Terminal is the present value of all the future cash flows. To calculate Terminal Value, we can use Gordon Growth Model.

Gordon Growth Model Formula= FCF in the next year after the forecast period/(WACC - Growth Rate)

In the question, we have been given the expected free cash flow in FY24, i.e. $82,503. WACC is 15% and Growth Rate is 5%. So, we can calculate Terminal value as follows:

TV= $82,503/(15%-5%)= $825030

Now we can calculate value of each share on Excel as follows:

The formulas used are as follows:

Second part of the question:

Terminal value using EBITDA multiple:

To calculate terminal value using EBITDA multiple of 7, we need to multiply EBITDA in FY23, i.e. $119,313 by 7.

So, terminal value = $119,313 * 7 = $835,191.

Stock valuation is as follows:

The formulas used are as follows:

Third part of the question:

Valuation of stock using EV/EBITDA multiple:

To calculate Enterprise value through EBITDA multiple, we need to multiply EBITDA in FY23, i.e. $119,313 by 8.

So, EV= $119,313 * 8 = $293.17

The valuation is as follows:

The formulas used are as follows: