Use the free cash flow valuation method to find the value per share for the foll

Question

Use the free cash flow valuation method to find the value per share for the following firm: A firm has just reported free cash flow to the firm (FCFF) for the last year as having been $65 Million. This amount is expected to grow at a rate of 2.5% per year for the foreseeable future. In addition, the firm’s WACC is estimated to be 7%. The firm has 10 Million shares outstanding. Finally, the firm has previously issued $400 Million in debt, but the current market value of this debt now appears to be $450 Million, given that interest rates have declined.

Explanation / Answer

Details Amt $   Last free cash flow                           65.0 million Growth rate for FCFF =g= 2.5% WACC = 7% Firm Value =PV of future free cash flows=65*1.025/(0.07-0.025)=                1,480.56 million So Enterprise Value = $            1,480.56 million Less Current Market value of Debt= $                450.00 million Value of Equity = $            1,030.56 million Outstanding no of Common stock=                         10.0 million Price per share = $                103.06 So value per share =$103.06

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.