Question

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?

Answer #1

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 |

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