Question

Analysts project that Company F will generate negative $20 million FCF at the end of this year, positive $30 million next year, and positive $40 million in year three. FCF is then expected to grow at a constant rate of 7% per year forever. The company has a wacc of 13%, $10 million in short-term investments, $100 million in debt, and 10 million shares of stock outstanding. What is the intrinsic stock price per share?

Answer 1

Free cash flow for year end 1 to 3 has been provided

g = Growth rate of FCF beyond year 3 = 7%

WACC = 13%

- Calculating the Enterprise Value ($ millions):-

EV = -17.6991 + 23.4944 + 27.7220 + 494.3758

EV = $527.89 millions

- Enterprise Value = Market Value of equity + Market Value of Debt - Cash & Cash equivalents

$527.89 millions = Market Value of equity + $100 million - $10 million

Market Value of equity= $437.89 million

- Intrinsic Price per share = Market Value of equity/No of shares outstanding

= $437.89 million/10 million

Intrinsic Price per share = $43.79

So, the intrinsic stock price per share is $43.79

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