13. More on the corporate valuation model Globo-Chem Co. is expected to generate

Question

13. More on the corporate valuation model Globo-Chem Co. is expected to generate a free cash flow (FCF) of $9,925.00 million this year (FCF1 = $9,925.00 million), and the FCF is expected to grow at a rate of 19.00% over the following two years (FCF2 and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.10% per year, which will last forever (FCF4). If Globo-Chem Co.'s weighted average cost of capital (WACC) is 6.30%, what is the current total firm value of Globo-Chem Co.? $315,936.87 million $373,155.34 million $31,490.10 million $379,124.24 million Globo-Chem Co.'s debt has a market value of $236,953 million, and Globo-Chem Co. has no preferred stock. If Globo-Chem Co. has 300 million shares of common stock outstanding, what is Globo-Chem Co.'s estimated intrinsic value per share of common stock? $789.84 $289.61 $262.28 $263.28

Explanation / Answer

1) Firm Value = FCF1/(1+WACC) + FCF2/(1+WACC)^2 + FCF3/(1+WACC)^3 + (FCF4/(WACC-g)/(1+WACC)^3

Firm Value = 9925/1.063 + 9925*1.19/1.063^2 + 9925*1.19^2/1.063^3+ (9925*1.19^2*1.021/(6.30%-2.10%))/1.063^3

Firm Value = $ 315,936.93 Milllion

Firm Value = $ 315,936. 87 Million (approx)

Answer

$ 315,936. 87 Million

2)

Intrensic value per share =( Firm Value - Market Vale of debt)/No of outstanding share

Intrensic value per share = (315936.93-236953)/300

Intrensic value per share = $ 263.28

Answer

D) $ 263.28

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