Question

What is the intrinsic value of a single share of stock given the information below? Cash:                     20...

What is the intrinsic value of a single share of stock given the information below?

  • Cash:                     20
  • CapEx:                  90
  • FCFF (today):     60
  • Fixed Assets:     300
  • Net Debt:            200
  • WACC:                  7%
  • cost of debt:      4%
  • # of shares:        15
  • growth rate:       2%
  • tax rate:               27%

a) $62.49

b) $68.27

c) $64.13

d) $66.67

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Answer #1

Calculation of Intrinsic value of a single share:

Formula,

Intrinsic value = Value of equity / No. of equity shares

Value of equity = Current Value of firm - Total Debt

Current Value of Firm = Free cash flow in year 1 / (WACC -Growth rate)

= $60 x (1+0.02) / (7% - 2%)

= $61.2 / 5%

= $1,224

Value of equity = $1,224 - $200

= $1,024

Intrinsic value = $1,024 / 15 shares

= $68.27 per share

So, the Answer is B)

Note: Free cash flow in year 1 = Current Free cash flow x (1+Growth rate)

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