Question

You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF ₁) is expected to be $28.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. Assume the firm has zero non-operating assets. What is the firm's estimated intrinsic value per share of common stock?  Do not round intermediate calculations.

Answer 1

Given about Noe Technologies,

end-of-year free cash flow FCF1 = $28.50 million

expected growth rate g = 7%

WACC = 10%

Enterprise value can be calculated using constant dividend growth rate model.

EV = FCF1/(WACC - g) = 28.50/(0.10-0.07) = 950 million

So, Enterprise value = MV of debt and preferred stock + MV of equity

=> MV of equity = 950 - 125 = $825 million

So, share price = MV of equity/number of shares = 825/15 = $55 per share

firm's estimated intrinsic value per share of common stock = $55