Question

11. More on the corporate valuation model Acme Corp. is expected to generate a free cash flow (FCF) of $3,780.00 million this year (FCF1 = $3,780.00 million), and the FCF is expected to grow at a rate of 23.80% over the following two years (FCF2 and FCF2). After the third year, however, the FCF is expected to grow at a constant rate of 3.54% per year, which will last forever (FCF4). Assume the firm has no nonoperating assets. If Acme Corp.'s weighted average cost of capital (WACC) is 10.62%, what is the current total firm value of Acme Corp.? (Note: Round all intermediate calculations to two decimal places.) O $74,111.51 million O $11,521.22 million $96,245.51 million O $88,933.81 million Acme Corp.'s debt has a market value of $55,584 million, and Acme Corp. has no preferred stock. If Acme Corp. has 675 million shares of common stock outstanding, what is Acme Corp.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $26.45 $27.45 $82.35 $30.19

Answer 1

	WACC=	10.62%
Year	Previous year FCF	FCF growth rate	FCF current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	3780		3780	1.1062	3417.1036
2	3780	23.80%	4679.64		4679.64	1.22367844	3824.23997
3	4679.64	23.80%	5793.39432	84724.301	90517.69532	1.35363309	66870.18511
	Long term growth rate (given)=	3.54%			Value of Enterprise =	Sum of discounted value =	74111.53
Where
Current FCF =Previous year FCF*(1+growth rate)^corresponding year
Unless FCF for the year provided
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

Enterprise value = Equity value+ MV of debt

74111.53 = Equity value+55584

Equity value = 18527.53

share price = equity value/number of shares

share price = 18527.53/675

share price = 27.45