Question
Year 1 2 3 &n
Year
1 2
3
4
5
Free Cash Flow $22 million $25 million $30 million $31 million $34
million
XYZ Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 1% per year. If the weighted average cost of capital is 7% and XYZ has cash of $13 million, a debt of $31 million, and 73 million shares outstanding, what is General Industries' expected current share price?
Round to the nearest one-hundredth.
Homework Answers
Answer #1
Calculating the Value of Firm/Enterprise value using Discounted Factor model:
EV = 20.56 + 21.84 + 24.49 + 23.65 + 24.24 + 408.07
EV = $ 522.85 millions
Enterprize Value = Value of equity + Debt - Cash
$522.85 million = Value of equity + $31 million - $ 13 million
value of Equity = $ 504.85 million
- Value of Equity = Share Price*no of shares outstanding
Share Price = $504.85 million/73million
Share price = $ 6.92 per share
General Industries' expected current share price is $ 6.92
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