Expected FCF, FCF1 = EBIT * (1 - Tax Rate) + Depreciation -
Increase in NWC – Capital Spending
Expected FCF, FCF1 = $2,850,000 * (1 - 0.23) + $220,000 - $125,000
- $225,000
Expected FCF, FCF1 = $2,064,500
Growth rate for next 4 years is 16% and a constant growth rate (g) of 2.80% thereafter
FCF2 = $2,064,500 * 1.160 = $2,394,820
FCF3 = $2,394,820 * 1.160 = $2,777,991
FCF4 = $2,777,991 * 1.160 = $3,222,470
FCF5 = $3,222,470 * 1.160 = $3,738,065
FCF6 = $3,738,065 * 1.028 = $3,842,731
WACC = 9.20%
Horizon Value = FCF6 / (WACC - g)
Horizon Value = $3,842,731 / (0.0920 - 0.0280)
Horizon Value = $60,042,671.8750
Value of Firm = $2,064,500/1.092 + $2,394,820/1.092^2 +
$2,777,991/1.092^3 + $3,222,470/1.092^4 + $3,738,065/1.092^5 +
$60,042,671.8750/1.092^5
Value of Firm = $49,373,301.1771
Value of Equity = Value of Firm - Value of Debt
Value of Equity = $49,373,301.1771 - $17,000,000
Value of Equity = $32,373,301.1771
Stock Price = Value of Equity / Number of Shares
Outstanding
Stock Price = $32,373,301.1771 / 835,000
Stock Price = $38.77
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