Question

CORPORATE VALUATION Scampini Technologies is expected to generate $150 million in free cash flow next year, and FCF is expected to grow at a | cnstant rate of 5% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 14%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Round your answer to two decimal places Each share of common stock is worth , according to the corporate valuation model.

Answer 1

Answer to Question 1:

Expected FCF = $150 million
Growth Rate = 5%
WACC = 14%

Value of Firm = Expected FCF / (WACC - Growth Rate)
Value of Firm = $150 million / (0.14 - 0.05)
Value of Firm = $1,666.67 million

Value of Equity = Value of Firm
Value of Equity = $1,666.67 million

Price per share = Value of Equity / Number of shares outstanding
Price per share = $1,666.67 million / 35 million
Price per share = $47.62

Answer to Question 2:

Expected Dividend, D1 = $1.75
Growth Rate, g = 5%
Required Return, rs = 15%

Current Price, P0 = D1 / (rs - g)
Current Price, P0 = $1.75 / (0.15 - 0.05)
Current Price, P0 = $17.50

Expected Price in 3 years = P0 * (1 + g)^3
Expected Price in 3 years = $17.50 * 1.05^3
Expected Price in 3 years = $20.26