a. The horizon value is computed as shown below:
= [ FCF in year 3 (1 + growth rate) ] / ( WACC - growth rate)
= [ $ 54 million (1 + 0.04) ] / (0.13 - 0.04)
= $ 56.16 million / 0.09
= $ 624 million
b. The amount is computed as follows:
= FCF1 / (1 + WACC) + FCF 2 / (1 + WACC)2 + FCF3 / (1 + WACC)3 + 1 / (1 + WACC)3 [ ( FCF in year 3 (1 + growth rate) / (WACC - growth rate) ]
= - $ 5 million / 1.13 + $ 33 million / 1.132 + $ 54 million / 1.133 + 1 / 1.133 x [ ($ 54 million x 1.04) / (0.13 - 0.04)
= $ 491.3070718 million or $ 491.31 million Approximately
c. The current price per share is computed as follows:
= ($ 491.3070718 million - $ 137 million) / 5 million shares
= $ 70.86 Approximately
Feel free to ask in case of any query relating to this question
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