Question
In: Finance
Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer...
Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer price is a fair price. You decided to use discounted cash flow approach to value the company’s stock. You gathered the following data: Year FCF Other Data 2019 $600,000 Growth rate of FCF beyond 2023 = 3% 2020 $900,000 Weighted Average Cost of Capital (WACC) = 10% 2021 $1,400,000 The firm has no debt 2022 2023 $1,800,000 $2,500,000 Number of common shares outstanding = 1,000,000 a. Based on your valuation, what is the common stock per share? Is the stock worth buying? b. What is the common stock per share if the terminal growth rate (growth rate beyond 2023) were 5% instead of 3%? Please cut and paste your Excel spreadsheet here.
Solutions
Expert Solution
The value per share is less than what is offered. Therefore should not be invested.
When growth rate is 5% of perpetuity.
Now the value per share is 37.72. However, the share is offered at disount at $30. Hence, should be invested.
If you have any doubt, you can ask in the comment section.
jeff jeffy answered 1 year agoRelated Solutions
Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer...
Angel Enterprise was going public in
2018. You were wondering whether the $30 per share offer price is a
fair price. You decided to use discounted cash flow approach to
value the company’s stock. You gathered the following data:
Year
FCF
Other Data
2019
$600,000
Growth rate of FCF beyond 2023 = 3%
2020
$900,000
Weighted Average Cost of Capital (WACC) = 10%
2021
$1,400,000
The firm has no debt
2022
2023
$1,800,000
$2,500,000
Number of common shares outstanding =...
Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer...
Angel Enterprise was going public in 2018. You were wondering
whether the $30 per share offer price is a fair price. You decided
to use discounted cash flow approach to value the company’s stock.
You gathered the following data: Year FCF Other Data 2019 $600,000
Growth rate of FCF beyond 2023 = 3% 2020 $900,000 Weighted Average
Cost of Capital (WACC) = 10% 2021 $1,400,000 The firm has no debt
2022 2023 $1,800,000 $2,500,000 Number of common shares outstanding
=...
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Income Statement for Fiscal Years Endings (in Millions, except per share amounts) Report Date 06/30/2019 06/30/2018...
Income Statement for Fiscal Years Endings
(in Millions, except per share amounts)
Report Date
06/30/2019
06/30/2018
06/30/2017
Net sales
$67,684
$66,832
$65,058
Cost of products sold
34,768
34,268
32,535
Gross profit
$32,916
$32,564
$32,523
Selling, general & administrative expense
19,084
18,853
18,568
Goodwill & indefinite lived intangible asset impairment
charges
8,345
0.00
0.00
Operating income
$5,487
$13,711
$13,955
Interest expense
509
506
465
Interest income
220
247
171
Other non-operating income (expense), net
871
-126
-404
Earnings from continuing operations...
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