Question

Mogoin Gol is a Mongolian coal mining company. The expected free cash during the next three years is listed below, after which the free cash flow is expected to grow at a constant 7% rate. Its WACC is 11%. (5pts.) Yr. Cash Flow ($ in millions) -20 30 50 What is its horizon value (or continuing value—when the cash flows begin to grow at a constant rate) (1 pt.) What is the firm’s value today? (3 pts.) Suppose Mogoin Gol has $500 million of debt and 75 million of stocks outstanding, what is the current price per share? (1 pt.) a. 1337.5, 1020.89, & 6.95 respectively (in dollars) b. 133.75, 125,000,000, & 6.67 respectively (in dollars) c. 1337.5, 967.40, & 6.95 respectively (in dollars) d. 90.68, 1182.65, & 3.79 respectively (in dollars)

Answer 1

	WACC=	11.00%
Year	Previous year FCF	FCF growth rate	FCF current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	-20		-20	1.11	-18.018
2	-20	0.00%	30		30	1.2321	24.34867
3	30	0.00%	50	1337.5	1387.5	1.367631	1014.52804
	Long term growth rate (given)=	7.00%			Value of Enterprise =	Sum of discounted value =	1020.86

Where
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 3 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor

2

Enterprise value = Equity value+ MV of debt

1020.86 = Equity value+500

Equity value = 520.86

share price = equity value/number of shares

share price = 520.86/75

share price = 6.94

a is correct