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Swamp & Sand Industries has the following data for the coming year. Free cash flow, cash,...

Swamp & Sand Industries has the following data for the coming year. Free cash flow, cash, and debt are constant. Terminal value is 3 times FCF. The discount rate is 12%. Calculate its Equity Value.

Free Cash Flow 220
Cash 48
Debt 107

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Correct Answer

727.0 margin of error +/- 1

Free Cash Flow and terminal value are discounted at 12% to get enterprise value. Enterprise Value -Debt -Cash =Equity Value Note: To conform with the class notes, we do subtract cash.

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Homework Answers

Answer #1

Enterprise value=PV OF FCF+PV OF TERMINAL VALUE

= FCF /(1+0.12)+TV/(1+0.12)

=(220/1.12)+(660/1.12)

(TV =3 times FCF=3*220=660)

=196.4286+589.2857=785.7143

Enterprise value=Equity value-cash+ Debt

Equity value=Enterprise value-debt+ cash

               =785.7143-107+48

                 =785.7143-59

   =726.7143

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