Question

IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development strategy, in late 2013 you initiate discussions with IDX's founder about the possibility of acquiring the business at the end of 2013. Estimate the value of IDX per share using a discounted FCF approach and the following data: • Debt: $22 million • Excess cash: $105 million Shares outstanding: 50 million • Expected FCF in 2014: $43 million • Expected FCF in 2015: $57 million • Future FCF growth rate beyond 2015: 4% • Weighted average cost of capital: 9.4% The enterprise value in 2013 is 5 million. (Round to the nearest integer.)

Answer 1

Enterprise Value in 2013=FCF in 2014/(1+WACC)+FCF in 2015/(1+WACC)^2+FCF in 2015/(1+WACC)^2*(1+g)/(WACC-g)=43/1.094+57/1.094^2+57/1.094^2*1.04/(9.4%-4%)=1004.164128 million

Equity Value=Enterprise Value+Excess Cash-Debt=1004.164128+105-22=1087.164128 million

Price per share=Equity Value/Number of Shares=1087.164128/50=21.74328256