Question

Question 12

Frank Martin Bread Company is projected to generate free cash flows of $85 million per year for the next two years, after which it is projected grow at a steady rate in perpetuity. The company's cost of capital is 11%. It has $250 million of debt and $12 million in cash. There are 30 million shares outstanding. Comparable companies trade at an average EV/FCFF multiple of 9. Using the exit multiple method for terminal value and DCF for the rest, what is your estimate of its share price?

a) $16.1 |
||

b) $17.6 |
||

c) $19.1 |
||

d) $20.1 |
||

e) $21.1 |

Answer #1

Given about Frank Bread Company,

Free cash flow of $85 million for next 2 years

=> FCF1 = $85 million

FCF2 = $85 million

after which it is projected grow at a steady rate in perpetuity

Comparable companies trade at an average EV/FCFF multiple of 9

Based on Exit multiple, EV at year 2 = 9*FCFF = 9*85 = $765 million

Cost of capital Kc = 11%

=> Value of firm today is sum of PV of future FCF and EV2 discounted at Kc

=> V0 = FCF1/(1+Kc) + FCF2/(1+Kc)^2 + EV2/(1+Kc)^2

=> V0 = 85/1.11 + 85/1.11^2 + 765/1.11^2 = $766.46 million

given that, It has $250 million of debt and $12 million in cash. There are 30 million shares outstanding.

So, value of stock today = (V0 - MV of debt + cash)/number of share = (766.46 - 250 + 12)/30 = $17.6

Option b is correct.

Frank Martin Bread Company is projected to generate free cash
flows of $90 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 7%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the rest,...

Frank Martin Bread Company is projected to generate free cash
flows of $90 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 9%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the rest,...

Frank Martin Bread Company is projected to generate free cash
flows of $90 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 11%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the rest,...

Frank Martin Bread Company is projected to generate free cash
flows of $90 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 11%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the rest,...

Frank Martin Bread Company is projected to generate free cash
flows of $90 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 7%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the rest,...

9. Frank Martin Bread Company is projected to generate free cash
flows of $80 million per year for the next two years, after which
it is projected grow at a steady rate in perpetuity. The company's
cost of capital is 11%. It has $250 million of debt and $12 million
in cash. There are 30 million shares outstanding. Comparable
companies trade at an average EV/FCFF multiple of 9. Using the exit
multiple method for terminal value and DCF for the...

A company is projected to generate free cash flows of $85
million per year for the next two years, after which it is
projected grow at a steady rate in perpetuity. The company's cost
of capital is 11%. It has $250 million of debt and $12 million in
cash. There are 30 million shares outstanding. Comparable companies
trade at an average EV/FCFF multiple of 9. Using the exit multiple
method for terminal value and DCF for the rest, what is...

1. A company is projected to generate free cash flows of $159
million next year and $204 million at the end of year 2, after
which it is projected grow at a steady rate in perpetuity. The
company's cost of capital is 9.7%. It has $171 million worth of
debt and $51 million of cash. There are 27 million shares
outstanding. If the exit multiple for this company's free cash
flows (EV/FCFF) is 5.1, what's your estimate of the company's...

A company is projected to generate free cash flows of $46
million per year for the next two years, after which it is
projected grow at a steady rate in perpetuity. The company's cost
of capital is 11.6%. It has $23 million worth of debt and $7
million of cash. There are 13 million shares outstanding. If the
exit multiple for this company's free cash flows (EV/FCFF) is 14,
what's your estimate of the company's stock price? Round to one...

A company is projected to generate free cash flows of $150
million next year and $210 million at the end of year 2, after
which it is projected grow at a steady rate in perpetuity. The
company's cost of capital is 8.0%. It has $200 million worth of
debt and $40 million of cash. There are 30 million shares
outstanding. If the exit multiple for this company's free cash
flows (EV/FCFF) is 4.0, what's your estimate of the company's stock...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 2 minutes ago

asked 2 minutes ago

asked 2 minutes ago

asked 6 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 9 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 15 minutes ago

asked 17 minutes ago