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ABC Enterprise has never paid a dividend. Free cash flow is projected to be $20 million...

ABC Enterprise has never paid a dividend. Free cash flow is projected to be $20 million and $30 million for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 7%. The company’s weighted average cost of capital is 12%. ABC has short-term investments of $100 million, the total debt of $80 million, and preferred stock of $20 million. ABC has 10 million shares of common stock. What is the intrinsic price per share? (Do not use the dollar sign ($) and round your answer to 2 decimal points)

Expert Solution

Free cash Flow in Year 1(FCF1) = $20 million

Free cash Flow in Year 2(FCF2) = $30 million

FCF will grow constantly each year after year 2(g) at = 7%

WACC = 12%

Calculating the Enterprise Value ($ millions):-

EV = 17.8571 + 23.9158 + 511.7985

EV = $553.57 millions

So, Enterprise is $553.57 millions

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

$553.57 millions = Market Value of equity + $80 million + $20 million - $100 million

Market Value of equity= $553.57 million

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

= $553.57 million/10 million

Intrinsic Price per share = $55.36

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jeff jeffy answered 1 year ago

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