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Based on the FCF valuation model, the value of Flagstaff Inc.'s operations is $500 million. The...

Based on the FCF valuation model, the value of Flagstaff Inc.'s operations is $500 million. The company's balance sheet shows $50 million in short-term investments, $50 million in notes payable, $50 million in long-term debt, and $5 million in preferred stock. If it has 50 million shares of stock outstanding, what is the best estimate of the stock's price per share?

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Answer #1

- Value of Flagstaff Inc.'s operations or Enterprise value = $500 million

Calculating Market Value of equity using Enterprise Value:-

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

where, Market Value of Debt = Long-term debt + Notes Payable = $50 million + $50 million

= $100 million

$500 million = Market Value of equity + $100 million + $5 million - $50 million

Market Value of equity = $445 million

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

Intrinsic Price per share = $445 million/50 million

Intrinsic Price per share = $8.9 per share

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