A company is projected to have a free cash flow of $261 million next year, growing...

A company is projected to have a free cash flow of $261 million next year, growing at a 7% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.0% in perpetuity. The company's cost of capital is 11.7%. The company owes $64 million to lenders and has $33 million in cash. If it has 111 million shares outstanding, what is your estimate for its stock price? Round to one decimal place. (e.g., $4.32 = 4.3)

Expert Solution

	WACC=	11.70%
Year	Previous year FCF	FCF growth rate	FCF current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	261		261	1.117	233.6616
2	261	7.00%	279.27		279.27	1.247689	223.82982
3	279.27	7.00%	298.8189	3142.219	3441.0379	1.393668613	2469.05029
	Long term growth rate (given)=	2.00%			*Value of Enterprise =*	*Sum of discounted value =*	2926.54

Where
Current FCF =Previous year FCF*(1+growth rate)^corresponding year
Unless FCF for the year provided
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

Enterprise value = Equity value+ MV of debt

- Cash & Cash Equivalents

2926.54 = Equity value+64-33

Equity value = 2895.54

share price = equity value/number of shares

share price = 2895.54/111

share price = 26.1

jeff jeffy answered 19 hours ago

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