Question

# A company is projected to generate free cash flows of \$85 million per year for the...

A company is projected to generate free cash flows of \$85 million per year for the next two years, after which it is projected grow at a steady rate in perpetuity. The company's cost of capital is 11%. It has \$250 million of debt and \$12 million in cash. There are 30 million shares outstanding. Comparable companies trade at an average EV/FCFF multiple of 9. Using the exit multiple method for terminal value and DCF for the rest, what is your estimate of its share price?

 Year 1 2 FCF 85.00 85.00 Terminal value = 85 * 9 765.00 Total cash flow 85.00 850.00 Present value calculation =85/(1+11%)^1 =850/(1+11%)^2 Present value 76.58 689.88 Enterprise value = Total PV of cash flow Enterprise value = 766.46 Equity value = Enterprise value - Debt + Cash Equity value = 766.46 - 250 + 12 Equity value = 528.46 Share price = Equity value / No. of shares Share price = 528.46 / 30 Share price = 17.62