You must estimate the intrinsic value of Gallovits Technologies\' stock. Gallovi

Question

You must estimate the intrinsic value of Gallovits Technologies' stock. Gallovits's end-of-year free cash flow (FCF) is expected to be $17.5 million, and it is expected to grow at a constant rate of 9.0% a year thereafter. The company's WACC (discount rate) is 11%. Gallovits has $200 million of long-term debt plus preferred stock, and there are 30 million shares of common stock outstanding. What is Gallovits's estimated intrinsic value per share of common stock?

Select the correct answer.

$22.50 $22.64 $22.43 $22.71 $22.57

Explanation / Answer

Value of operations = Free cash flows1÷( Capitalization Rate- growth rate )

= $17.50 Million/(11%-9%)

= $875 Millions

Value of equity = Value of operations-Value of preferred stock and debt

= $875 Millions-$200 Million

= $675 Million

Intrinsic value per share:

= $675 Millions/30 Millions

= $22.50

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