Enterprise Value= Sum of present values of Free Cash Flows (FCFs)
Given, FCFs for next 3 years (FCF1, FCF2 and FCF3)= $629 Million each
Growth rate after 3 years (g)= 2.8% in perpetuity.
Cost of capital or Discount rate (r) = 7.7%
Therefore, enterprise value (EV) = FCF1/(1+r) + FCF2/(1+r)^2 + FCF3/(1+r)^3 + [FCF4/(r-g)]/(1+r)^3
FCF4= FCF3*(1+g) = $629 Million*(1+2.8%) = $646.612 Million
FCF4/(7.7%-2.8%) = $646.612 Million/(7.7%-2.8%) = $13,196.163265 Million
Therefore, EV= $629 Million/(1+7.7%) + $629 Million/(1+7.7%)^2 + $629 Million/(1+7.7%)^3 +$13,196.163265 Million/(1+7.7%)^3
=$584.02971 Million + $542.27457 Million + $503.50471 Million + $10,563.3233 Million
=$12,193.1322 Million.
Enterprise value (EV)= Market Capitalization + Debt – Cash
Therefore, Market Capitalization= EV - Debt + Cash
Given, Debt= $186 Million and Cash= $56 Million
Therefore,
Market capitalization=$12,193.1322 Million- $186 Million + $56 Million= $12,063.1322 Million
Number of shares outstanding= 193 Million
Therefore, Share price= Market Capitalization/Number of shares
= $12,063.1322 Million/193 Million = $62.5
A company is projected to generate free cash flows of $629 million per year for the...
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