Walleye Feeders Inc. Valuations See the table below showing a three-year forecas
ID: 2757281 • Letter: W
Question
Walleye Feeders Inc. Valuations
See the table below showing a three-year forecast for Walleye Feeders Inc. and complete the following valuation scenarios:
Year 2013 2014 2015
Free cash flow ($ millions) $-20 $48 $54
1. Estimate the fair market value of Walleye Feeders at the end of 2012. Assume that after 2015, free cash flows are expected to grow at a constant rate of 12.5% and Walleye Feeders' weighted-average cost of capital is 14 percent.
2. Estimate the fair market value per share of Walleye Feeders' equity at the end of 2012 if the company has 50 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $55 million.
Please provide calculations
Explanation / Answer
Free Cash Flow for year 2016= CF for2015*(1+Growth rate)
= $54 *(1.125)= 60.75 million
Discounted Future cash flow at begning of year 2016 = FCFat end of 2016/ (WACC-Growth rate)
= 60.75 / (.14-.125) = $4050 million
Fair market value of Walleye Feeders at the end of 2012= PV of Future Cash Flow
= (-20*.877) +(48*.769)+ (54*.675)+ (4050*.675)
= $2789.57 Million
2- Market Value of Equity= Total Value - Debt Value
= $2789.57-$55 = $2734.57 million
Fair market Value per share= Market value of Equity/No. of Share
= $2734.57/ 50= $54.69 per share
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