Question

IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development​ strategy, in late 2013 you initiate discussions with​ IDX's founder about the possibility of acquiring the business at the end of 2013. Estimate the value of IDX per share using a discounted FCF approach and the following​ data: bullet ​Debt: $ 34 million bullet Excess​ cash: $ 101 million bullet Shares​ outstanding: 50 million bullet Expected FCF in​ 2014: $ 43 million bullet Expected FCF in​ 2015: $ 57 million bullet Future FCF growth rate beyond​ 2015: 5 % bullet ​Weighted-average cost of​ capital: 9.4 %

The enterprise value in 2013 is ​$ ( )million (Round to two decimal​ places.)

The equity value is $ ( )million (Round to two decimal​ places.)

The value of IDX per share is ​$ ( ) (Round to two decimal​ places.)

Answer 1

a). IDX’s Terminal Enterprise Value in 2014 = FCF(2015) / (WACC - g)

= $57 / (9.4% - 5%) = $57 / 4.4% = $1,295.45 million

Enterprise Value in 2013 = [FCF(2014) + Terminal Value(2014)] / (1 + wacc)

= [$43 million + $1,295.45 million] / 1.094

= $1,338.45 million / 1.094 = $1,223.45 million

b). Equity Value = Enterprise Value in 2013 + Excess Cash - Debt

= $1,223.45 million + $101 million - $34 million = $1,290.45 million

c). Value of IDX per share = Equity Value / Shares Outstanding

= $1,290.45 million / 50 million = $25.81