Expert Q&A Done Heavy Metal Corporation is expected to generate the following fr
ID: 2819209 • Letter: E
Question
Expert Q&A Done Heavy Metal Corporation is expected to generate the following free cash flows over the next three years Year 1 2 3 FCF (S million) 22 41 52 Thereafter, the free cash flows are expected to grow at the industry average of 4.2 % per year. Using the discounted free cash flow model and a weighted average cost of capital of 13.2 % a. Estimate the enterprise value of Heavy Metal b. If Heavy Metal has no excess cash, debt of S 293 million, and 39 million shares outstanding, estimate its share price a. Estimate the enterprise value of Heavy Metal. The enterprise value will be Smlion. (Round to two decimal places.) b. If Heavy Metal has no excess cash, debt of S 293 million, and 39 million shares outstanding, estimate its share price.The stock price per share will be $. (Round to the nearest cent.)Explanation / Answer
FCF1 = $22 million
FCF2 = $41 million
FCF3 = $52 million
Growth rate, g = 4.2%
WACC = 13.2%
FCF4 = FCF3 * (1 + g)
FCF4 = $52 million * 1.042
FCF4 = $54.184 million
Value of firm at the end of Year 3 = FCF4 / (WACC - g)
Value of firm at the end of Year 3 = $54.184 million / (0.132 - 0.042)
Value of firm at the end of Year 3 = $602.04 million
Current Value of Firm = $22 million / 1.132 + $41 million / 1.132^2 + $52 million / 1.132^3 + $602.04 million / 1.132^3
Current Value of Firm = $502.31 million
Value of Equity = Value of Firm - Value of Debt
Value of Equity = $502.31 million - $293 million
Value of Equity = $209.31 million
Stock Price per share = Value of Equity / Number of shares outstanding
Stock Price per share = $209.31 million / 39 million
Stock Price per share = $5.37
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