Question
In: Finance
The tables below present expected free cash flow related data for XYZ for Year 1 and...
The tables below present expected free cash flow related data for XYZ for Year 1 and selected balance sheet data as of Year 0. XYZ has reached the steady state growth phase and XYZ’s WACC is 8%.
Year 0 Data
|
Debt |
4,000 |
|
Shares outstanding |
400 |
Year 1 Data
|
NOPLAT |
4,500 |
|
Free Cash Flow |
1,200 |
|
CAPEX |
130 |
You expect that XYZ would grow at 2.0% per year in perpetuity. What
is XYZ’s intrinsic value per share.
| A. |
67.5 |
|
| B. |
40 |
|
| C. |
75 |
|
| D. |
50 |
Solutions
Expert Solution
| As per Gordon model, value of firm= Expected free cashflow/(cost of capital-growth) | ||
| So value of firm= | 1200/(0.08-0.02) | |
| = | $ 20,000.00 | |
| Value of equity = | Value of firm - marker value of debt | |
| 20000-4000 | ||
| $ 16,000.00 | ||
| Shares outstanding= | 400.00 | |
| Value per share | $ 40.00 | (16000/400) |
So the correct answer is option B i.e. $40.
jeff jeffy answered 2 years agoRelated Solutions
The tables below present expected free cash flow related data for XYZ for Year 1 and...
The tables below present expected free cash flow related data
for XYZ for Year 1 and selected balance sheet data as of Year
0. XYZ has reached the steady state growth phase and
XYZ’s WACC is 8%.
Year 0
Data
Debt
4,000
Shares outstanding
400
Year 1 Data
NOPLAT
4,500
Free Cash Flow
1,200
CAPEX
130
You expect that XYZ would grow at 3.5% per year in perpetuity. What
is XYZ’s intrinsic value per share.
A.
56.67
B.
76.5
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Please show your work so I can recreate in
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SHOW ALL WORK
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