Question

Consider recent financials for Ellie's Essentials LLC:

Balance Sheet

	2018	2017
Current Assets	$11,225.00	$10,000.00
Net PPE	$31,000.00	$30,000.00
Total Assets	$42,225.00	$40,000.00
Current Liabilities	$8,441.00	$8,000.00
Long-term debt	$13,970.00	$12,000.00
Total Liabilities	$22,411.00	$20,000.00
Shareholder Equity	$19,814.00	$20,000.00
Liabilities and Equity	$42,225.00	$40,000.00

Income Statement	2018	2017
SALES	$11,000.00	$10,000.00
COGS	$4,400.00	$4,000.00
GROSS PROFIT	$6,600.00	$6,000.00
S&A	$1,100.00	$1,000.00
Depreciation	$550.00	$500.00
EBIT	$4,950.00	$4,500.00
INTEREST	$1,272.00	$1,200.00
EBT	$3,678.00	$3,300.00
TAXES (36.00%)	$1,324.08	$1,188.00
NET INCOME	$2,353.92	$2,112.00

Going forward, analysts have forecasted the following free cash flows: $2,550.00 in 2019, and $2,600.00 in 2020. After that point, analysts expect free cash flows to grow at 5.00%. The firm has no short-term debt or preferred stock, and there are 1,000 shares outstanding. The firm's cost of capital is 11.00%.

Estimate the firm’s price per share using the discounted cash flow model.

Answer 1

Calculation of firm's price per share using discounted cash flow model
Year	2019	2020	Terminal value
Free cash flow	$2,550.00	$2,600.00	$24,818.13	2600*(1.05)/(0.11-0.05)
Discount factor @ 11%	0.900901	0.811622	0.811622433
Present value of free cash flow	$2,297.30	$2,110.22	$20,142.95
Sum of present value of free cash flow (2297.30+2110.218+20142.95)	24550.47
Number of shares outstanding	1000
Estimated price per share	$24.55
The firm's estimated price per share is $24.55