Use a DCF model and the following data to estimate the per share value (in milli
ID: 2817437 • Letter: U
Question
Use a DCF model and the following data to estimate the per share value
(in millions, except shares out)
Year 1
Year 2
Year 3
Year 4
Year 5
Operating Income
127.2
136.4
142.4
150.5
128.8
Depreciation
12
12
12
12
12
Cap Ex
10
11
12
12
12
Other Info
Tax Rate
21%
Discount Rate
10%
Long Debt
400
Terminal Growth
4%
Pension Liability
200
Shares Out
50 million
(in millions, except shares out)
Year 1
Year 2
Year 3
Year 4
Year 5
Operating Income
127.2
136.4
142.4
150.5
128.8
Depreciation
12
12
12
12
12
Cap Ex
10
11
12
12
12
Other Info
Tax Rate
21%
Discount Rate
10%
Long Debt
400
Terminal Growth
4%
Pension Liability
200
Shares Out
50 million
Explanation / Answer
First we calculate the present value of the future cash flows as shown in the table below:
Cash flow from year 6 onwards will grow infinitely at 4%. The PV of which is calculated as CF6/(r-g) = 94,792,000*1.04/(0.10-0.04) = 1,643,061,333.33
Net present value of future cash flows = 95,108,000/1.10 + 101,586,000/1.10^2 + 105,536,000/1.10^3 +111,935,000/1.10^4 + 94,792,000/1.10^5 + 1,643,061,333.33/1.10^5 =1,405,231,251.05
Now, we reduce the liabilties and divide by number of shares
Per share value = (1,405,231,251.05 - 400,000,000 - 200,000,000 )50,000,000
Per share value = 16.1046
Estimated value per share = $16.10 (Rounde to 2 decimals)
Year 1 2 3 4 5 Operating Income 127200000 136400000 142400000 150500000 128800000 Less: Depreciation -12000000 -12000000 -12000000 -12000000 -12000000 Less: Capital expenditure -10000000 -11000000 -12000000 -12000000 -12000000 Income before taxes 105200000 113400000 118400000 126500000 104800000 Taxes at 21% -22092000 -23814000 -24864000 -26565000 -22008000 Net Income 83108000 89586000 93536000 99935000 82792000 Add back depreciation 12000000 12000000 12000000 12000000 12000000 Operating Cash flow 95108000 101586000 105536000 111935000 94792000Related Questions
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