Question

Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: Year 4 74.8 FCF (S million) 51.9 67.6 78.8 83.6 (Click on the icon located on the top-right comer of the data table in order to copy its contents into a spreadsheet.) After that, the ree cash flows are expected to grow at the industry average 39% per year. Usng he scounted free cash flow model anda a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $299 million, and 36 million shares outstanding, estimate its share price eighted average cost of apital of a a. Estimate the enterprise value of Heavy Metal. The enterprise value will be million. (Round to two decimal places.) b. If Heavy Metal has no excess cash, debt of $299 million, and 36 million shares outstanding, estimate its share price. The stock price per share willbe S (Round to two decimal places.)

Answer 1

A.Enterprise value will be equal to the present value of future cash flows

= 51.9*PVF(13.8%, 1 year) + 67.6*PVF(13.8%, 2 years)+78.8*PVF(13.8%, 3 years) + 74.8*PVF(13.8%, 4 years) + 83.6*PVF(13.8%, 5 years) + 83.6(1+0.039)/(13.8%-3.9%)*PVF(13.8%, 5 years)

= 51.9*0.879 + 67.6*0.772 + 78.8*0.679+74.8*0.596 + 83.6*0.524 +877.38*0.524

= $699.45 million

b.Debt = $299 million

value of equity = value of enterprise – value of debt

= $400.45 million

Stock price per share = 400.45 million/36 million

= $11.12 per share