3. Lex Corp, has coming year. In addition, net capital exp by $2,000 million. Th

Question

3. Lex Corp, has coming year. In addition, net capital exp by $2,000 million. The FCF is expected to expected net operating profit after taxes, ERIT(-T, ot S23900 millin in the he firm is expected to have depreciation of amortization of s1,000 willion, capital is year, however, the FCF is expected to grow n er. Les at a rate of 20' ever the following (wyyears. After t rate of 4 PET YCAE, which wiw O 3200,000 million, and its preferred stock has a market value of s50 ,000 Corp.'s weighted 1 average cost of eapital Corn 5,000 on shares of common stock outstanding, what is Lex Corp.'s estimsted intrinsie value per share of common stock? (12 points) million. if lex Corp. stiated intrinsie valp: has. FCF t toco-(2000 t 2000) : 20, oco , 23,000 2752 (14) 34.52m 2772 -4 2,62 WACC- 8 20 m 245L SoooM

Explanation / Answer

FCF=EBIT*(1-tax rate)+Depreciation-Working Capital Investment-Fixed Capital Investment

FCF1=23000+1000-2000-2000=20000 m
FCF2=20000*(1+20%)=240000 m
FCF3=24000*(1+20%)=28800 m
FCF4=28800*(1+4%)=29952 m

Enterprise Value=20000/1.08+24000/1.08^2+28800/1.08^3+29952/1.08^3*1/(8%-4%)=656378.6 m
Intrinsic Value of Equity=Enterprise Value-Debt-Preferred Stock=656378.6-200000-50000=406378.6 m
Intrinsic value per share=406378.6/5000=81.27572

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