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f there are 500 million shares outstanding, use the following information to find a fair value...

f there are 500 million shares outstanding, use the following information to find a fair value for Galaxy Interiors stock using the Free Cash Flow (FCF) model.

GALAXY INTERIORS INCOME STATEMENT ($ in millions)

NET SALES $ 35,000

COST OF GOODS SOLD $ 17,500

DEPRECIATION $ 2,500

EARNINGS BEFORE INTEREST AND TAXES (EBIT) $ 15,000

INTEREST EXPENSE $ 1,300

TAXABLE INCOME (EARNINGS BEFORE TAXES; EBT) $ 13,700

TAXES (0.30) $ 4,110

NET INCOME $ 9,590

Assume the following:

• Free cash flow (FCF) will grow at 2.5%

• Galaxy's equity beta is 1.50

• Risk-free rate is 3% and market return is 13%

• Currently, Galaxy is not paying any dividends

• Book value of total debt is equal to the market value of debt

• further note that, FCF (Free cash flow) = EBIT*(1-t) + depreciation - NCS - change in NWC

approx. $125

approx. $199

approx. $375

approx. $258

GALAXY INTERIORS BALANCE SHEET (PAST & CURRENT)

($ IN MILLIONS)

PAST YR

CURRENT YR

PAST YR

CURRENT YR

CURRENT ASSETS

5500

6700

CURRENT LIABILITIES

2200

3000

(NET) FIXED ASSETS

25000

27000

LONG TERM DEBT

9300

9700

TOTAL ASSETS

30500

33700

TOTAL EQUITY

19000

21000

TOTAL LIAB & EQUITY

30500

33700

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Expert Solution

ekkarill92 answered 3 years ago
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