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Mogoin Gol is a Mongolian coal mining company. The expected free cash during the next three...

Mogoin Gol is a Mongolian coal mining company. The expected free cash during the next three years is listed below, after which the free cash flow is expected to grow at a constant 7% rate. Its WACC is 11%. (5pts.) Yr. Cash Flow ($ in millions) -20 30 50 What is its horizon value (or continuing value—when the cash flows begin to grow at a constant rate) (1 pt.) What is the firm’s value today? (3 pts.) Suppose Mogoin Gol has $500 million of debt and 75 million of stocks outstanding, what is the current price per share? (1 pt.) a. 1337.5, 1020.89, & 6.95 respectively (in dollars) b. 133.75, 125,000,000, & 6.67 respectively (in dollars) c. 1337.5, 967.40, & 6.95 respectively (in dollars) d. 90.68, 1182.65, & 3.79 respectively (in dollars)

Solutions

Expert Solution

WACC= 11.00%
Year Previous year FCF FCF growth rate FCF current year Horizon value Total Value Discount factor Discounted value
1 0 0.00% -20 -20 1.11 -18.018
2 -20 0.00% 30 30 1.2321 24.34867
3 30 0.00% 50 1337.5 1387.5 1.367631 1014.52804
Long term growth rate (given)= 7.00% Value of Enterprise = Sum of discounted value = 1020.86
Where
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

2

Enterprise value = Equity value+ MV of debt
1020.86 = Equity value+500
Equity value = 520.86
share price = equity value/number of shares
share price = 520.86/75
share price = 6.94

a is correct

jeff jeffy answered 1 year ago
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