The financial statements of Lioi Steel Fabricators are shown below—both the actu
ID: 2671124 • Letter: T
Question
The financial statements of Lioi Steel Fabricators are shown below—both the actual results for 2010 and the projections for 2011. Free cash flow is expected to grow at a 6% rate after 2011. The weighted average cost of capital is 11%.a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011?
b. What is the horizon value as of 12/31/2011? c. What is the value of operations as of 12/31/2010? d. What is the total value of the company as of 12/31/2010? e. What is the intrinsic price per share for 12/31/2010
Explanation / Answer
a. NOPAT = EBIT (1 – tax rate) = $108.6(1-0.4) = $65.16 NOWC = Current assets – Current liabilities = ($5.6 + $56.2 + $112.4) – ($11.2 + $28.1) = $134.9 million. Capital = NOWC + Net plant and equipment = $134.9 + $397.5 = $532.4 million. FCF = NOPAT – Investment in Capital = $65.16 – ($532.4 - $502.2) = $65.16 - $30.2 = $34.96 million. b. HV = FCF (1 + g)/ (WACC – g) = [$34.96(1.06)]/ (0.11-0.06) = $741.152 million. c. V Ops = [FCF + HV] / (1 + WACC) = [$34.96 + $741.152]/ (1+0.11) = $699.20 million. d. Total corporate value = V Ops + Marketable securities = $699.20 + $49.9 = $749.10 million. e. Value of equity = Total corporate value – (Notes payable + Long term bonds) – Preferred stock = $749.10 – ($69.9 + $140.8) - $35.0 = $503.4 million. Price per share = Value of equity/Number of shares = $503.4 / 10 = $50.34
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