Berzerk Motors is expected to have a free cash flow of $750,000 next year. Cash flows...

Berzerk Motors is expected to have a free cash flow of $750,000 next year. Cash flows are expected to grow at 18 percent per year for the next four years(years 2-5). After year 5, the free cash flow is projected to grow at 3.5 percent indefinitely. The firm currently has $3 million in debt, 500,000 shares outstanding, and a WACC of 10.24%.

What is the value of Berzerk Motors?

What is the price per share of the company’s stock?

Expert Solution

Year	FCF(million)	FCF	PVF @ 10.24%	Present value
1	750000	$ 750,000.00	0.9071	$ 680,325.00
2	FCF1*1.18	$ 885,000.00	0.8228	$ 728,178.00
3	FCF2*1.18	$ 1,044,300.00	0.7464	$ 779,465.52
4	FCF3*1.18	$ 1,232,274.00	0.6770	$ 834,249.50
5	FCF4*1.18	$ 1,454,083.32	0.6141	$ 892,952.57
5	Terminal	$ 22,329,024.28	0.6141	$ 13,712,253.81
		Total		$ 17,627,424.39

Value of Firm = $ 17627424.39

Value of equity = $ 17627424.39 - 3000000 = $ 14627424.39

Price per share = $ 14627424.39/ 500000 = $ 29.25 per share

jeff jeffy answered 1 year ago

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