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CORPORATE VALUATION

Scampini Technologies is expected to generate $50 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 14%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Round your answer to two decimal places.

Each share of common stock is worth $ , according to the corporate valuation model

Answer 1

stock's value per share = value of equity/no. of shares of stock outstanding

Scampini has no debt or preferred stock. so, it's equity value is equal to its firm value.

firm value = [free cash flow next year*(1 + indefinite FCF growth rate)]/(WACC - indefinite FCF growth rate)

firm value = [$50 million*(1 + 0.07)]/(0.14 - 0.07) = ($50 million*1.07)/0.07 = $53.5‬ million/0.07 = $764.2857142857143‬ million

so, equity value is $764.2857142857143‬ million.

stock's value per share = $764.2857142857143‬ million/35 million = $21.84

the stock's value per share is $21.84.