You are working on the valuation for an upcoming IPO. The company that wants to

Question

You are working on the valuation for an upcoming IPO. The company that wants to sell its stock expects the following future free cash flows (FCF, in millions of dollars): -7 in year 1, 7 in year 2, 15 in year 3, and cash flows are expected to grow steadily at 4.4% after year 3. The discount rate for this company is 11%, and it plans to sell 14 million shares. What should be the price per share?

Enter your answer in terms of dollars, rounded to cents (maximum of 2 decimals), and without the dollar ($) sign. If your answer is $25.43 (25 dollars and 43 cents), then enter 25.43

Explanation / Answer

Particulars figures in millions Free Cash Flow Year 1 (FCF1) -$7 Free Cash Flow Year 2 (FCF2) $7 Free Cash Flow Year 3 (FCF3) $15 Growth Rate after Year 3 4.40% Discount Rate 11% No of Shares 14 Horizon Value FCF3/(Discount Rate-Growth Rate) 15/(0.11-0.044) $227.27 Year Cash Flows PV Factor 11% Discounted Cash Flow 1 -$7 0.9009 -$6.31 2 $7 0.8116 $5.68 3 $15 0.7312 $10.97 3 $227.27 0.7312 $166.18 Total $176.52 Value of Discounted cash flow $176.52 No of Shares 14 Price per share $12.61

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