Question

You are valuing Soda City Inc. It has $110 million of debt, $90 million of cash, and 140 million shares outstanding. You estimate its cost of capital is 12.4%. You forecast that it will generate revenues of $700 million and $800 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 20%, and the tax rate is 30%. Each year, deprecation is $4mm and capital expenditures including the change in net working capital are $6mm. The terminal EV/FCFF exit multiple at the end of year 2 is 16. What is your estimate of its share price?

1.

$45.20

2.

$13.66

3.

$11.79

4.

$81.20

5.

$11.04

Answer 1

Solution:

The share price is calculated in the excel and share price = $11.04

The correct option is 5) $11.04