Question

EF company wishes to assess the value of its AS Devision. The AS Devision’s estimated free cash flow for shareholders (ECF) each year 2020 through 2023 is given in the following table. Beyond 2023 to infinity, the firm expects its free cash flow to grow at 3% annually. The required ate of retyrn by shareholders is equal 12%

year	FCF
2020	700 000
2021	1 200 000
2022	1 100 000
2023	1 200 000

1. Use the ECF valuation model to estimate the value of entire AS Devision.
2. AS Division is a public company and it has 500 000 shares outstanding. Use your findings from part a to calculate its value per share.

Answer 1

Value of firm is equal to present value of future cash flows
Value in case of infinite cash flows = Cash flows next year / Ke - g
Here g = 3% and Ke = 12%
yr	CF	PVF	DCF
2020	700000	0.893	6,25,000
2021	1200000	0.797	9,56,633
2022	1100000	0.712	7,82,958
2023	1200000	0.636	7,62,622
2024 to Inf	1236000	0.636	1,37,33,333
			1,68,60,546
Number of shares outstanding = 500000
Value per share = 16860546/500000
Value per share =	33.721