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You estimate the following free-cash-flow (FCF) data for LipCo (in millions). The firm’s long-term FCF growth rate will be 3% per year after year three and the firm’s cost of capital is 9%. LipCo has no debt and 8 million shares outstanding. Using the corporate valuation model, what is the intrinsic price of one share of LipCo? (Round at the end)

9. You estimate the following free-cash-flow (FCF) data for LipCo (in millions). The firms long-term FCF growth rate will be
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Answer #1

Value of company is equal to the present value of future cash flows

= 5/(1.09) + 10/(1.09)2 + 12/(1.09)3 + 12(1.03)/(9%-3%)*(1.09)3

= $181.33995 millions

Number of shares = 8 million

Intrinsic Price of one share = 181.33995/8

= $22.67

Hence, the right answer is b

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