Question

3. You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $70.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. Assume the firm has zero non-operating assets. What is the firm's estimated intrinsic value per share of common stock? Please include excel formulas.

Answer 1

Based on the given data, pls find below steps, workings and answer:

WACC is 10%, perpetual growth rate is 5%, Free Cash Flows = $ 70 Million, Debt = $ 200 million and Cash = 0

Enterprise Value = FCF / (WACC% - Growth %) = 70 / (10%-5%) = $1400 Million

Equity Value = Enterprise Value - Debt Obigations + Cash and Cash Equivalents = 1400 - 200 + 0 = $ 1200 Million

Outstanding shares (Common stock) = 30 Million

Estimated Intrinsic value per stock = Equity Value / Outstanding Shares = $ 1200 / 30 = $ 40 per share

Answer:  The firm's estimated intrinsic value per share of common stock is $ 40 per share.