Answer a.
FCF1 = -$20 million
FCF2 = $30 million
FCF3 = $40 million
Growth Rate, g = 10%
WACC = 16%
FCF4 = FCF3 * (1 + g)
FCF4 = $40 million * 1.10
FCF4 = $44 million
Horizon Value = FCF4 / (WACC - g)
Horizon Value = $44 million / (0.16 - 0.10)
Horizon Value = $733.33 million
Answer b.
Value of Firm = -$20 million / 1.16 + $30 million / 1.16^2 + $40
million / 1.16^3 + $733.33 million / 1.16^3
Value of Firm = $500.49 million
Answer c.
Value of Equity = Value of Firm - Value of Debt + Value of
Marketable Securities
Value of Equity = $500.49 million - $100.00 million + $10.00
million
Value of Equity = $410.49 million
Intrinsic Value per share = Value of Equity / Number of Shares
Outstanding
Intrinsic Value per share = $410.49 million / 10 million
Intrinsic Value per share = $41.05
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