Question

Houda Motors has just announced results that show that the FCF for the past year is...

Houda Motors has just announced results that show that the FCF for the past year is $23 million. An experienced analyst believes that the growth rate of the FCF for the next 10 years will be 25% per year and that after 10 years the growth rate will be 7% annually. Houda's WACC is 18%, and the company has 100 million shares outstanding. Value the shares assuming that the FCF's occur at year end. Houda has no debt and no excess cash reserves.

1. What is the share price?

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Answer #1

Value of equity is the present value of future free cash flow of company. So, present value of equity of company is calculated in excel and screen shot provided below:

Value of firm is $718,227.844.

Number of share outstanding = 100 million or 100,000,000

Intrinsic value of stock = $7,18,227,844 / 100,000,000

= $7.18

Intrisic value of equity is $7.18.

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