Question

In: Finance

Company A has the following free cash flows for the next three years: FCF1=-20million, FCF2=30million, and...

Company A has the following free cash flows for the next three years: FCF1=-20million, FCF2=30million, and FCF3=40million. After year 3, FCF is expected to grow at a constant 7% rate. WACC is 13%. What is the horizon value?What is the firm’s value today?Suppose the company has $100 million in debt and 10 million shares of stock outstanding. What is the firm’s estimated intrinsic value per share of common stock?

Solutions

Expert Solution

1) Horizon Value $       71,33,33,333
2) Firm's Value today $       52,78,93,074
3) Intrinsic Value per share $ 42.79
Working:
Horizon value is the present value of cash flow at the time when growth is stable.
a.
Horizon value = FCF3*(1+g)/(K-g) Where,
= 40000000*(1+0.07)/(0.13-0.07) FCF3 $       4,00,00,000
= $       71,33,33,333 g 7%
K 13%
b.
Present Value horizon value = $       71,33,33,333 x (1.13^-3)
= $       49,43,75,782
c.
Present value of yearly cash flow
Year Cash flow Discount factor Present Value
1 $       -2,00,00,000                        0.8850 $        -1,76,99,115
2 $         3,00,00,000                        0.7831 $          2,34,94,401
3 $         4,00,00,000                        0.6931 $          2,77,22,006
Total $          3,35,17,292
d.
Total Present value today = $       49,43,75,782 + $ 3,35,17,292
= $       52,78,93,074
e.
Total Present value today $       52,78,93,074
Less:Debt $       10,00,00,000
Value of shares outstanding $       42,78,93,074
No. of shares outstanding              1,00,00,000
Value per share $                      42.79

Related Solutions

The company has the following free cash flows for the next 4 years FCF1=-100, FCF2=-55, FCF3=-40,...
The company has the following free cash flows for the next 4 years FCF1=-100, FCF2=-55, FCF3=-40, FCF4=150, after year 4, the growth rate of the FCF will be 10%, and the WACC=15%, then what the firm value should be?
Given the following data: FCF1 = $20 million; FCF2 = $30 million; free cash flow grows...
Given the following data: FCF1 = $20 million; FCF2 = $30 million; free cash flow grows at a rate of 2% for year 3 and beyond. If the weighted average cost of capital is 12%, calculate the value of the firm. $270.72 million $266.73 million $285.71 million $253.33 million
A company is forecasted to generate free cash flows of $45million for the next three...
A company is forecasted to generate free cash flows of $45 million for the next three years. After that, cash flows are projected to grow at a 2.5% annual rate in perpetuity. The company's cost of capital is 12.3%. The company has $66 million in debt, $7 million of cash, and 13 million shares outstanding. What's the value of each share?
A company is forecasted to generate free cash flows of $53 million for the next three...
A company is forecasted to generate free cash flows of $53 million for the next three years. After that, cash flows are projected to grow at a 2.2% annual rate in perpetuity. The company's cost of capital is 12.8%. The company has $54 million in debt, $6 million of cash, and 13 million shares outstanding. What's the value of each share? a. 33.4 b. 71.4 c. 32.7 d. 39.1 e. 45.0
The company you want to acquire has the following cash flows for the next five years....
The company you want to acquire has the following cash flows for the next five years. Assume that the cost of equity is 15.5% and the firm can borrow long term at 12% (Tax rate for the firm is 50%). The current book value of equity is $1300 and the book value of debt outstanding, which sells at par value, is $700 (book value of debt = market value of debt). The company has 50 shares. Year FCF to Firm...
UBTECH Robotics is expected to generate the following free cash flows over the next five years....
UBTECH Robotics is expected to generate the following free cash flows over the next five years. After which, the free cash flows are expected to grow at the industry average of 3% per year. Using the discounted free cash flow model and the weighted average cost of capital of 11% UBTECH Robotics FCF Forecast ($ Millions) Year 1999, 2000, 2001, 2002, 2003, 2004 FCF (Amount in Millions)$55, $45, $89, $102, $84, $87 a. Estimate the enterprise value (V0) of UBTECH...
Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000, and FCF...
Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value?
Forecast Apple's free cash flows for each of the next five years based on Apple's free...
Forecast Apple's free cash flows for each of the next five years based on Apple's free cash flow for 9/24/2016 and 9/30/2017. Assume that the changes in operating assets and liabilities is $0 for each of the years in your forecast period (9/30/18 - 9/30/22).
You are asked to compute the free cash flows of a company for the next 5 years. You receive the following relevant selected
You are asked to compute the free cash flows of a company for the next 5 years. You receive the following relevant selected information from the incremental earnings forecast: In additon, you know that 15% of sales and costs of goods sold must be allocated to the working capital. The weighted average cost of capital is 7%. The company expects a growth rate of its free cash flows of 2% after year 5.a) Compute the free cash flows of the...
-Company A's free cash flow is estimated to be $75 million for the next three years....
-Company A's free cash flow is estimated to be $75 million for the next three years. -expect growth of 5 percent per year in free cash flow -Company A has 18 million shares outstanding, cash on hand of $50 million, liabilities of $155 million, and a weighted average cost of capital of 8 percent. If you want to become an owner (a shareholder), how much can you expect to pay per share? (Do not round intermediate calculations. Round your final...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT