Question

Question 9 Homework. Unanswered A company is projected to generate free cash flows of $40 million per year for the next two years, after which it is projected grow at a steady rate in perpetuity. The company's cost of capital is 13.0%. It has $20 million worth of debt and $8 million of cash. There are 10 million shares outstanding. If the appropriate terminal exit value for this company is 15, what's your estimate of the company's stock price? Round to one decimal place.

Answer 1

Free cash flow in year 1 = 40 M

FCF in year 2 = 40 M

Terminal value = 15 * 40 = 600 ( as the terminal exit value is 15)

Cost of capital = 13%

Enterprise value of the company = 40/1.13 + 40/1.13^2 + 600/1.13^2 = $ 536.61 M

Market value of equity = EV - Debt + Cash = 536.61 - 20 + 8 = $ 524.61

Number of shares outstanding = 10 M

Price per share =  (524.61/ 10) = $ 52.46