Question
In: Finance
company has free cash flow of $120m last tear. investors belueve cahs flow will grow by...
company has free cash flow of $120m last tear. investors belueve
cahs flow will grow by 20% this year, 12% year 2, 6% annuly
thereafter. company has $1b in cash , $750 in debt, $500m is
prefered stock. if common stock is 12%. wacc is 8% and has 10m
shares outatanding . what is price per share of common stock?
Solutions
Expert Solution
| WACC= | 8.00% | ||||||
| Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
| 1 | 120 | 20.00% | 144 | 144 | 1.08 | 133.3333 | |
| 2 | 144 | 12.00% | 161.28 | 8547.84 | 8709.12 | 1.1664 | 7466.66667 |
| Long term growth rate (given)= | 6.00% | Value of Enterprise = | Sum of discounted value = | 7600 |
| Where | |||
| Current FCF =Previous year FCF*(1+growth rate)^corresponding year | |||
| Total value = FCF + horizon value (only for last year) | |||
| Horizon value = FCF current year 2 *(1+long term growth rate)/( WACC-long term growth rate) | |||
| Discount factor=(1+ WACC)^corresponding period | |||
| Discounted value=total value/discount factor | |||
| Enterprise value = Equity value+ MV of debt+ MV of preferred stock |
| - Cash & Cash Equivalents |
| 7600 = Equity value+750+500-1000 |
| Equity value = 7350 |
| share price = equity value/number of shares |
| share price = 7350/10 |
| share price = 735 |
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