Question

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

C.

67.5

D.

78.21

Answer 1

As per Gordon model, value of firm= Expected free cashflow/(cost of capital-growth)
So value of firm=	1200/(0.08-0.035)
=	$                                               26,666.67
Value of equity =	Value of firm - marker value of debt
	26666.67-4000
	$                                               22,666.67
Shares outstanding=	400.00
Value per stock	$                                                      56.67	(22666.67/400)
So the correct answer is option A i.e. $ 56.67