Question

An analyst is trying to estimate the intrinsic value of XYV Inc. The analyst has estimated...

An analyst is trying to estimate the intrinsic value of XYV Inc. The analyst has estimated the company’s free cash flows for the following years:

               Year                                                    Free Cash Flow

               1                                                          $3,000

               2                                                          $4,000

               3                                                          $5,500

               4                                                          $8,500

The analyst estimates that after four years (t=4) the company’s free cash flow will grow at a constant rate of 3 per cent per year. The estimated weighted average cost of capital is 8 percent. The company’s debt has a total market value of $75,000 and there are 2,000 outstanding shares of common stock. What is the intrinsic value per share of the company’s stock?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

As per Discounted Cash Flow Valuation,

Firm Value = PV(FCF) + PV(Terminal Value)

FCF1 = $3,000

FCF2 = $4,000

FCF3 = $5,500

FCF4 = $8,500

Terminal Value = FCFi+1(1 + g)/(WACC - g)

g = 3%

WACC = 8%

Firm Value = 3000/(1.08) + 4000/(1.08)2 + 5500/(1.08)3 + 8500/(1.08)4 + 8500(1 + 0.03)/(0.08 - 0.03)(1.08)4

Firm Value = 2777.78 + 3429.36 + 4366.08 + 6247.75 + 128703.73

Firm Value = $145,524.70

Equity Value = Firm Value - Market Value of Debt

Equity Value = 145,524.70 - 75,000

Equity Value = $70,524.70

Number of Shares Outstanding = 2,000

Intrinsic Value per Share = Equity Value/Number of Shares outstanding

Intrinsic Value per Share = 70524.70/2000

Intrinsic Value per Share = $35.26

Please "Like" if you find this useful, and comment if you have any doubts.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1)...
You must estimate the intrinsic value of IST Technologies’ stock. The end-of-year free cash flow (FCF1) is expected to be $55.00 million, and it is expected to grow at a constant rate of 5.0% a year thereafter. The company’s WACC is 9.0%, it has $105.0 million of long-term debt plus preferred stock outstanding, and there are 20.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock....
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock. She had learnt about dividend discount models as an application of time value of money to price equity instruments. She projected the expected dividends which ABC Co. will be paying. ABC Co. is expected to pay a dividend of $5 at the end of second year with an expected dividend payment of zero for first year. The dividend is expected to grow at 5%...
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is...
You must estimate the intrinsic value of Mobile Technologies' stock. The end-of-year free cash flow is expected to be $5 million for the first two years and $27 million for year 3, 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. What is the firm's estimated intrinsic value...
Q.2. Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co....
Q.2. Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock. She had learnt about dividend discount models as an application of time value of money to price equity instruments. She projected the expected dividends which ABC Co. will be paying. ABC Co. is expected to pay a dividend of $5 at the end of second year with an expected dividend payment of zero for first year. The dividend is expected to grow at...
You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF...
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...
A financial analyst has been following Davis Inc., a new high-tech firm. He estimates that the...
A financial analyst has been following Davis Inc., a new high-tech firm. He estimates that the current risk-free rate (rF) is 6.25%, the market risk premium (rM - rF) is 5%, and the firm’s beta is 1.75. The current dividend just paid (D0) is $1.00. The analyst estimates that the company’s dividend will grow at a rate of 25% this year, 20% next year, and 15% the following year. After three years the dividend is expected to grow at a...
5. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below....
5. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below. The weighted average cost of capital is 10% and the free cash flows are expected to continue to grow at 8.2 percent after Year 3 indefinitely. Year 1 2 3 Free cash flow $10.00 -$48.00 $150.50 A. Calculate the firm’s FCF for year 4. B. Calculate the Horizon value in year 3. C. Assuming a $150 million for the company’s total market value of...
A company’s weighted average cost of capital is 12.1% per year and the market value of...
A company’s weighted average cost of capital is 12.1% per year and the market value of its debt is $70.1 million. The company’s free cash flow last year was $12.3 million and it is expected to grow 30% per year for the next three years. Thereafter, the free cash flow is expected to grow forever at a rate of 6.7% per year. If the company has six million shares of common stock outstanding, what is the value per share? Please...
Intrinsic Value of Merger target Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1.5...
Intrinsic Value of Merger target Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1.5 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.40 (given its target capital structure). Vandell has $11.41 million in debt that trades at par and pays a 7.2% interest rate. Vandell’s free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 4% a year. Vandell pays a 25%...
You need to estimate the intrinsic value of Frenchie Apparel (on a per share basis). A....
You need to estimate the intrinsic value of Frenchie Apparel (on a per share basis). A. Construct a DCF model. We estimate that next year’s revenues are 1,000,000 and projected to grow at 10% each year until year 4 (years 1-3). The EBITDA is 45% of the year’s revenue, and the estimated depreciation expense is 100,000 a year, and is not expected to change over time. The firm does not anticipate having any NWC or CAPEX needs in the foreseeable...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT