Question

Here are the recent financial statements for Snyder Foods:

2017 Income Statement
Sales	2,000
COGS	1,500
EBIT	500
Interest expense	20
Taxable income	480
Taxes	192
Net Income	288

2017 Balance Sheet
Cash	100		Accounts payable	150
Accounts receivable	70		Total current liabilities	150
Inventory	130
Total current assets	300		Long-term debt	250
			Common stock	100
Fixed assets	700		Retained earnings	500
			Total stockholders equity	600
Total	1000		Total	1000

2017 Statement of Cash Flows
Operating activities:
Net Income	288
Depreciation	70
Change in accounts receivable	30
Change in inventory	(60)
Change in accounts payable	20
Cash flow from operating activities	348
Investing activities:
Capital expenditures	(250)
Cash flow from investing activities	(250)
Financing activities
Repayment of borrowing	(18)
Cash flow from financing activities	(18)

1. Assume that future free cash flow will grow at 6% per year and their cost of capital is 15%, estimate the fair market value (i.e., the enterprise value) as of year-end 2017.
2. Estimate the firm’s stock price, if there are 100 shares outstanding.

Answer 1

Free cashflow = Cashflow form operating activities - Capital expenditure Free cashflow = (348-250) Free cashflow = $ 98 Present value of Free cashflow is = (Free cashflow*growth rate)/(Cost of capital - Growth rate) Present value of Free cashflow is = (98*106%)/(0.15-0.06) Present value of Free cashflow is = $ 1,154.22). Fair market value is $ 1,154.221. Firms stock price is = (Fair market value/Outstanding shares) Firms stock price is = (1154.22/100) Firms stock price is = $ 11.5422/.