Question

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 15%. If Scampini has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent.

Each share of common stock is worth $   , according to the corporate valuation model.

Answer 1

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 15%. If Scampini has 45 million shares of stock outstanding, what is the stock's value per share?

Answer: $ 5.56

Working:

In order to calculate the stock’s value, we need to calculate the value of the business (i.e. Scampini Technologies). Formula for calculating value of business is as follows;

Value of the business = Free cash flows in next year ÷ (Required rate - Growth rate)

                                    = $25million ÷ (0.15 - .05)

                                    = 250 million

                                    = $250,000,000

Where,

Free cash flows in next year = $25 million (provided in the question)
Required rate = 15% (i.e. WACC, provided in the question)
Growth rate = 5% (provided in the question)

What is the stock's value per share?

Formula for calculating value per share is as follows;

Value per share         = value of business ÷ Number of shares outstanding

                                    = 250,000,000 ÷ 45,000,000

                                    = $5.5555

                                    = $5.56

Where

Value of business = $250,000,000 (computed above)
Number of shares outstanding = 45million (provided in the question)