Heavy Metal Corporation is expected to generate the following free cash flows ov

ID: 2824613 • Letter: H

Question

Heavy Metal Corporation is expected to generate the following free cash flows over the next five? years:

Year

FCF? ($ million)

53.453.4

66.466.4

78.178.1

74.674.6

81.381.3

?(Click

spreadsheet.?)

After? that, the free cash flows are expected to grow at the industry average of

3.7 %3.7%

per year. Using the discounted free cash flow model and a weighted average cost of capital of

14.7 %14.7%?:

a. Estimate the enterprise value of Heavy Metal.

b. If Heavy Metal has no excess? cash, debt of

$ 303$303

?million, and

4242

million shares? outstanding, estimate its share price.

Year

FCF? ($ million)

53.453.4

66.466.4

78.178.1

74.674.6

81.381.3

?(Click

on the icon located on the? top-right corner of the data table in order to copy its contents into a

spreadsheet.?)

a). V5 = D5(1 + g)/(r - g)

= $81.3(1.037)/(0.147 - 0.037)

= $84.3081/0.11 = $766.44 million

V0 = D1/(1 + r)1 + D2/(1 + r)2 + D3/(1 + r)3 + D4/(1 + r)4 + (D5 + V5)/(1 + r)5

= $53.4M/1.1471 + $66.4M/1.1472 + $78.1M/1.1473 + $74.6M/1.1474 + ($81.3M + $766.44M)/1.1475

= $46.56M + $50.47M + $51.76M + $43.10M + $427.02M = $618.90 million

b). P = ($618.90 + $0 - $303M)/42M = $315.90M/42M = $7.52

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