Corporate Valuation Ishita Corp has never paid a dividend. Free cash flow is pro

Question

Corporate Valuation Ishita Corp has never paid a dividend. Free cash flow is projected to follow the timeline below. After the third year, FCF is expected to grow at 8% annually. The WACC is 13%. $M Year 1 2 3 -10 20 80 1. What is Ishita's Terminal Value? 2. What is the current value of operations? 3. Suppose Ishita has $5M in marketable securities, $30M in liabilities, and 20M shares of stock. What is Ishita's share price? Corporate Valuation Ishita Corp has never paid a dividend. Free cash flow is projected to follow the timeline below. After the third year, FCF is expected to grow at 8% annually. The WACC is 13%. $M Year 1 2 3 -10 20 80 1. What is Ishita's Terminal Value? 2. What is the current value of operations? 3. Suppose Ishita has $5M in marketable securities, $30M in liabilities, and 20M shares of stock. What is Ishita's share price?

Explanation / Answer

1)Termianl value at year3 =CF3 ( 1 +g) / (WACC -g)

                                            = 80 (1+ .08) /(.13 -.08)

                                            = 80 *1.08 / .05

                                          = $ 1728

2)current value =Present value of cash flow (CF1*PVF@13%,1)+(CF2 * PVF@13%,2)+(CF3*PVF@13%,3 )+(Terminal value *PVF@13%,3)

= (-10 *.88496 ) +(20*.78315 )+(80* .69305 )+(1728*.69305)

= - 8.8496 + 15.663 + 55.444+ 1197.5904

= 1259.85

3)Share price = 1259.85 / 20

                      = $ 62.99 per share

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