In: Finance
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?
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