3. Taiwan Semiconductor Manufacturing Co.\'s stock is trading at NT$181 per shar

Question

3. Taiwan Semiconductor Manufacturing Co.'s stock is trading at NT$181 per share. Based on your analysis, you estimate it will earn after-tax cash profits of NT$309,865M, NT$341,276M, NT$374,320M, NT$408,605M and NT$444,139M in the middle of each of the next five years, respectively. From that point onward, you believe its after-tax cash profits will grow by 5% per year forever. You believe, based on returns of similarly risky investments, your discount rate is 11%. Finally, Taiwan Semiconductor Manufacturing Co. has NT$228,678M in debt, NT$516,955M in cash and 25,930M shares of stock outstanding. Should you invest in Taiwan Semiconductor Manufacturing Co.'s stocki?

Explanation / Answer

Free cash flow to firm = NT$5,975,140.51

Free cash flow to equity =  NT$5,975,140.51 - NT$228678 - NT$516955 = NT$5229507.51

Share price = NT$5229507.51/25930 = $201.68

One should invest in this stock since the price of stock is less than its intrinsci value.

Year 1 2 3 4 5 terminal Value Cashflow 309865.00 341276.00 374320.00 408605.00 444139.00 7772432.50 PV 279157.66 276987.26 273699.56 269160.77 263574.88 4612560.39 PV of all cashflow 5975140.51

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