Question

A company’s free cash flow next year is expected to be -$11.2 million, $3.6 million the following year, and $6.2 million in the third year. Thereafter, the free cash flow is expected to grow forever at a rate of 4.8% per year. The company’s weighted average cost of capital is 11.1% per year and the market value of its debt is $35.2 million. If the company has four million shares of common stock outstanding, what is the value per share?

Please complete in excel and post formulas and answer. Thank you!

Answer 1

Step-1:Calculation of present value of next three years dividend
	Year	Cash flow	Discount factor		Present Value
	a	b	c=1.111^-a		d=b*c
	1	$     -11.2	0.9001		$   -10.08	Million
	2	$         3.6	0.8102		$       2.92	Million
	3	$         6.2	0.7292		$       4.52	Million
		Total			$     -2.64	Million
Step-2:Present value of cash flow after year 3
	Present Value		=	(C3*(1+g)/(Ke-g)*DF3				Where,
			=	(6.2*(1+0.048)/(0.111-0.048))*0.7292				C3	$         6.2
			=	$    75.21	Million			g	0.048
								Ke	0.111
								DF3	0.7292
Step-3:Calculation of Value of firm
	Present Value of all future cash flows				=	$     -2.64	+	$    75.21
					=	$    72.56	Million
	Value of firm is the present value of cash flows.
	So, value of firm is		$    72.56	Million
Step-4:Calclation of Value of per share
					Million
	Value of firm				$    72.56
	Less:Value of debt				$    35.20
	Value of Equity				$    37.36
	/ Number of shares outstanding				4
	Value per share				$       9.34
Thus,
	Value per share is		$       9.34