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Complex finance problem using Excel Valuing Copperhead Corporation: Use the FCF valuation method with multiple growth...
Complex finance problem using Excel
Valuing Copperhead Corporation: Use the FCF valuation method with multiple growth rates for Copperhead Corporation, a rapidly-growing service firm. Here are the relevant data necessary to calculate the share price value of Copperhead, utilizing the Valuation Method 2: The Price of a Share Is the Discounted Value of the Future Anticipated FCFs.
|
Valuing Copperhead Corporation |
|
|
2014 FCF (base year) |
$2,500,000 |
|
High growth rate, ghigh |
30% |
|
Normal growth rate, gnormal |
11% |
|
Number of high-growth years |
5 |
|
WACC |
18% |
|
End-2014 debt |
$3,500,000 |
|
End-2014 cash |
$1,750,000 |
|
Number of shares (end-2014) |
2,400,000 |
Solutions
Expert Solution
| WACC= | 18.00% | ||||||
| Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
| 1 | 2500000 | 30.00% | 3250000 | 3250000 | 1.18 | 2754237.288 | |
| 2 | 3250000 | 30.00% | 4225000 | 4225000 | 1.3924 | 3034329.216 | |
| 3 | 4225000 | 30.00% | 5492500 | 5492500 | 1.643032 | 3342905.068 | |
| 4 | 5492500 | 30.00% | 7140250 | 7140250 | 1.93877776 | 3682861.516 | |
| 5 | 7140250 | 30.00% | 9282325 | 147191153.6 | 156473478.6 | 2.287757757 | 68395999.58 |
| Long term growth rate (given)= | 11.00% | Value of Enterprise = | Sum of discounted value = | 81210332.67 |
| 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 5 *(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 |
| - Cash & Cash Equivalents |
| 81210332.67 = Equity value+3500000-1750000 |
| Equity value = 79460332.67 |
| share price = equity value/number of shares |
| share price = 79460332.67/2400000 |
| share price = 33.11 |
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