Question

Al Safi is a Saudi COMPANY has several business lines. The current free cash flow of the company was SR 30 Million but it is expected to grow at 5% each year. The company’ cost of equity is 10%. There is a marketable financial instruments/securities worth SR 80 million, and the debt is SR 150 million, and the company has 10 million shares outstanding, 40 preferred stock, what is the stock value?

Answer 1

Current Free Cash Flow (FCF) = FCF0 = SR 30 million, Growth Rate = 5 %,

FCF1 = FCF0 x (1+Growth Rate) = 30 x 1.05 = SR 31.5 million

Cost of Equity = r = 10 %

Firm Value = FCF1 / (r - growth rate) = 31.5 / (0.1 - 0.05) = SR 630 million

Stock Value = Firm Value + Marketable Securities - Debt = 630 + 80 - 150 = SR 560 million

Preferred Stock Value = SR 40 million

Common Stock Value = 560 - 40 = SR 520 million

Number of Common Stocks Outstanding = 10 million

Price per Common Stock = 520 / 10 = SR 52