Question

You are valuing a company that is projected to generate a free cash flow of $10 million next year, growing at a stable 2% rate in perpetuity thereafter. The company has $22 million of debt and $8.5 million of cash. Cost of capital is 11%. There are 5 million shares outstanding. How much is each share worth according to your valuation analysis?

Answer 1

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Answer:

Firstly we have to compute the value of firm
	Value of firm =		Free cash flow next year /(required rate - growth rate)
			10/(11%-2%)
			111.111	million
Secondly, we have compute the equity value
	Value of firm =		111.111	million
	Less: Debt =		-22	million
	Add: Cash =		8.5	million
A	Value of equity		97.611	million
B	Number of share =		5	million
C=A/B	Price per share =		19.52
	Ans =		$   19.52