DEC Technologies is a privately held developer of advanced security systems base

Question

DEC Technologies is a privately held developer of advanced security systems based in Boston.

As part of your business development strategy, in late 2008 you initiate discussions with DEC’s founder about the possibility of acquiring the business at the end of 2008. Estimate the value of DEC per share using a discounted FCF approach and the following data:

* Debt: $40 million

* Excess cash: $105 million

* Shares outstanding: 50 million

* Expected FCF in 2009: $45 million

* Expected FCF in 2010: $50 million

* Future FCF growth rate beyond 2010: 5%

* Weighted-average cost of capital: 9.4%

Explanation / Answer

Enteprise Value = Present Value of Free Cash Flow + Present Value of Terminal Value

915895576.5

DEC Per Share = Equity Value/No of Shares = 980895576.5/50000000 = $ 19.62

Years 2009 2010 Free Cash Flow (FCF) 45000000 50000000 Present Value of Cash Flow 41133455 41776818 Terminal Value 996946798 Present Value of Terminal Value 832985303

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