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Complex finance problem using Excel Valuing Copperhead Corporation: Use the FCF valuation method with multiple growth rates...

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Finance

Complex finance problem using Excel

Valuing Copperhead Corporation: Use the FCF valuation methodwith multiple growth rates for Copperhead Corporation, arapidly-growing service firm. Here are the relevant data necessaryto calculate the share price value of Copperhead, utilizing theValuation Method 2: The Price of a Share Is the Discounted Value ofthe Future Anticipated FCFs.

Valuing Copperhead Corporation

2014 FCF (base year)

$2,500,000

High growth rate, ghigh

30%

Normal growth rate, gnormal

11%

Number of high-growth years

5

WACC

18%

End-2014 debt

$3,500,000

End-2014 cash

$1,750,000

Number of shares (end-2014)

2,400,000

Answer & Explanation Solved by verified expert
3.7 Ratings (343 Votes)

WACC= 18.00%
Year Previous year FCF FCF growth rate FCF current year Horizon value Total Value Discount factor Discounted value
1 2500000 30.00% 3250000 3250000 1.18 2754237.288
2 3250000 30.00% 4225000 4225000 1.3924 3034329.216
3 4225000 30.00% 5492500 5492500 1.643032 3342905.068
4 5492500 30.00% 7140250 7140250 1.93877776 3682861.516
5 7140250 30.00% 9282325 147191153.6 156473478.6 2.287757757 68395999.58
Long term growth rate (given)= 11.00% Value of Enterprise = Sum of discounted value = 81210332.67
Where
Current FCF =Previous year FCF*(1+growth rate)^corresponding year
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 5 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor
Enterprise value = Equity value+ MV of debt
- Cash & Cash Equivalents
81210332.67 = Equity value+3500000-1750000
Equity value = 79460332.67
share price = equity value/number of shares
share price = 79460332.67/2400000
share price = 33.11

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Transcribed Image Text

Complex finance problem using ExcelValuing Copperhead Corporation: Use the FCF valuation methodwith multiple growth rates for Copperhead Corporation, arapidly-growing service firm. Here are the relevant data necessaryto calculate the share price value of Copperhead, utilizing theValuation Method 2: The Price of a Share Is the Discounted Value ofthe Future Anticipated FCFs.Valuing Copperhead Corporation2014 FCF (base year)$2,500,000High growth rate, ghigh30%Normal growth rate, gnormal11%Number of high-growth years5WACC18%End-2014 debt$3,500,000End-2014 cash$1,750,000Number of shares (end-2014)2,400,000

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