Question

Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: (Click on the following icon in order to copy its contents into a spreadsheet.) 2 3 Year FCF (5 million) 53. 6 66.2 78. 6 4 75. 3 . 5 82.5 After that, the free cash flows are expected to grow at the industry average of 4.4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 13.6% a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $288 million, and 42 million shares outstanding, estimate its share price. a. Estimate the enterprise value of Heavy Metal The enterprise value will be $ million. (Round to two decimal places.) b. If Heavy Metal has no excess cash, debt of $288 million, and 42 million shares outstanding, estimate its share price. price. The stock price per share will be $ (Round to two decimal places.)

Answer 1

Value of business= FCF1/(1+r)^1 + FCF2/(1+r)^2 …………FCFn/(1+r)^n+ (FCFn+1/ (k-g))/(1+r)^n

= 53.6/1.136^1+66.2/1.136^2+78.6/1.136^3+75.3/1.136^4+82.5/1.136^5+ (82.5*104.4%/(13.6%-4.4%))/1.136^5

= 735.77 million

Share price = (Value of business-Debt)/Shares outstanding

= (735.77-288)/42

=$10.66