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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 agoRelated Solutions
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