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?

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Expert Solution

Forecasted Free cash flow(FCF) for year 1 to 3 is $45 million each year

g = Growth rate of FCF beyond year 3 = 2.5%

WACC = 12.3%

Calculating the Enterprise Value ($ millions):-

EV = 40.071 + 35.682 + 31.774 + 332.331

EV = $439.86 millions

- Enterprise Value = Market Value of equity + Market Value of Debt - Cash & Cash equivalents

$439.86 millions = Market Value of equity + $66 million - $7 million

Market Value of equity= $380.86 million

- Value per share = Market Value of equity/No of shares outstanding

= $380.86 million/13 million

Value per share = $29.30

jeff jeffy answered 2 years ago

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